Double-take Software (DBTK)

Company

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DBTK 1-year chart

"Headquartered in Southborough, Massachusetts, Double-Take® Software is a leading provider of affordable workload optimization products that are simple to use and enable IT managers to easily move, protect, recover and more flexibly run critical IT workloads in physical and virtual environments, regardless of platform or location. With its unparalleled partner programs, technical support, and professional services, Double-Take Software is the solution of choice for more than 19,000 customers worldwide, from SMEs to the Fortune 500." (company website)

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DBTK 6-month chart

Sell short

In early February, Double-Take beat Expectations with earnings of 48¢/share instead of the expected 16¢. This gave the stock a boost for the next couple of weeks, but then the downtrend re-asserted itself. DBTK is now at the lows established in October, November, and again in February.

  • Percentage price oscillator (PPO) — closely hugging the signal line
  • Volume — slight uptick in recent volume, but falling off over the 6-month period

Based on technical analysis, MarketEdge calls DBTK a "short candidate" in a "weak downward trend."

Buy to cover

gain Bottom line
-14%

There must be a lesson in here, somewhere. When I shorted DBTK, it had just tested the downtrend line and apparently failed. The following two days were also down-days with bearish characteristics: opened at day's high and fell both days. MarketEdge had called it a "short candidate." One week later, DBTK has broken through the trend line, broken through the 50-day moving average, and broken through the upper Bollinger band.

So, the useful question to ask is, What signals did I miss or ignore?

  • The PPO line had just crossed above the signal line. According to my system, that should have been a signal to buy, but I ignored it because of the big drop a few days before, stretching the Bollinger band lower. It has plenty of room to fall before reaching the new low again, I thought.
  • The bottom of each down-cycle was marked by heavy volume, followed by moving up quickly. These must be capitulations, points at which there is a mass rush for the exits, which in turn provides a buying opportunity.
  • The "deliberation day" Wednesday had a wide range between high and low, but began and ended at almost the same spot — the previous day's close. The low that day was back at my sell-price. Alas, a lost opportunity to have bailed with a trivial loss.

WIND is another short also gone sour, also marked by a high-volume plunge, and where I also ignored the PPO signal. It also had been a "short candidate."

The problem is, it's always easier to see these things in hind-sight.