Wednesday, September 25, 2013

It Was a Good Ride, But It's Time to Get Off the Tangoe Train (TNGO)

Call it a hunch (because that's pretty much all it is), but Tangoe Inc. (NASDAQ:TNGO) looks likes it's on the verge of pulling back... and by more than a little. After a 75% runup since late April, TNGO shares are running out of gas, and are due for some profit-taking.

I know the fans and supports (and shareholders) of TNGO are likely to already be up in arms and sharpening their pitchforks because I merely mentioned the idea. To them, I can only say this - it's nothing personal against then, or the company, nor is it necessarily a long-term judgment call. It's simply an acknowledgement of a trading reality; Tangoe Inc. shares are frothy and due for a dip. Like I said, it's time for some profit-taking.

The zoomed out daily chart of Tangoe tells the tale. The runup has been strong, but perhaps to the point of not being sustainable at its current pace. Shares are also now 46% above their 200-day moving average line (green), versus the "normal" maximum of about 11%. You'll also notice that volume has NOT been growing on the way up, suggesting there's not a lot of participation in the rally - there just haven't been many sellers to get in the way. Yeah, the volume buying perked up one day a couple of weeks ago, and was solid in the latter part of last week. The selling volume in between those two times, however, was also strong, suggesting there are just as many people willing to get out of TNGO at its current price.

With all of that being said, the shape of today's bar from TNGO is a clue in itself. It's a doji bar - so far anyway - where the open and close (current price) are about the same, and often in the middle the intraday range; they usually take shape after a strong move (which this chart has certainly made). In this case, both the open and close so far are near the bottom of today's high/low range, bolstering the bearish argument.

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See, dojis often occur at key pivot points, as it implies the stock's at a balance between a net-selling environments and a net-buying environment... the small window of time between a move from one environment to another. In the case of Tangoe Inc., that transition would obviously be from a bullish environment to a bearish one. The fact that the open and the close for Tuesday are both at the lower end of the day's trading range implies the buying effort has struggled to keep up with the selling effort. Consider it a red flag.

The clincher will be the next strong move lower on a daily chart... lower than today's close. Once that happens, it will be a sign the tide has turned to the point of no return. And, as overbought as the stock is, once the TNGO avalanche starts, it's going to be a nasty tumble.

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