Is the bottom in on Gigamon?

Gigamon, GIMO, a maker of corporate network performance monitoring equipment and one of 2013’s high-tech IPO darlings, saw its price more than double in the early months of trading. Since March of last year though, it has had a rough go of it as its shares have lost more than 70% from its peak, bottoming in October of last year. Interestingly, at that bottom you can see in the weekly chart below it created a divergent, over-sold low which we have found to be one of more reliable indicators for identifying bottoms and potential early entry points. In retrospect, we wish we would have jumped on it as it has risen almost 100% from the lows.  Woulda, shoulda, coulda!

The daily chart below clearly shows we are sitting just below a level of strong resistance (red horizontal line) and if overcome would likely be a catalyst to propel this stock to much higher levels. Its ugly inverse head and shoulders reversal pattern projects to a target around 30 and the gap just above will likely grease the way for a quick move higher.  I want to bring your attention to the blue circle. Notice the confluence of signals right there as the downtrend ended and all the moving averages were pinched together and begun to point higher rather than lower.  As we learned in last week’s post, this is another early signal that I have found to provide high-probability, winning entry points for investments.

Whenever I decide to enter into a position I use the many tools Technical Analysis teaches you to insure the risk/reward ratio makes it sufficiently worthwhile.  One that I like to use but have not introduced to my blog readers is point and figure charts. Due to their unique construct they provide very good price targets but their beauty is their simplicity.  They visually appear like a collection of X's and O's on a grid of square boxes. Columns of X's alternate with columns of O's. The X's represent a period of rising prices and the O's represent a period of falling prices. Because time is not a variable, the only thing you see is and allows you to focus on is the movement of price. The PnF chart below for GIMO projects a bullish upside target of 27.14, very close to the head and shoulders pattern target projected in the paragraph above.

I really like this opportunity as there are a number of other elements, that in an effort to keep this post to a minimum I have not addressed, almost all positive. In investing there is never a perfect setup and this one has a concern too, the open gap that sits just under the current consolidation around $17.5.  Because we know that gaps want to be filled the question that is nagging me is should I wait for it to fill the gap and potentially miss out on an excellent opportunity if it decides to move higher without filling or do I buy on the hope it gets filled at some point in the distant future when I no longer own it?  This question is a perfect example of what why what I post is for informational purposes and to be taken as a recommendation.