Advanced Emissions Solutions: Shares Are Not Ready To Move (NASDAQ:ADES)

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Intro

We wrote about Advanced Emissions Solutions, Inc. (NASDAQ:ADES) back in October of last year when we went through some of the company’s key balance sheet trends. We observed some encouraging trends like how cash had been growing and interest-bearing debt had been declining to name but a few. Growing retained earnings and $48 million of treasury stock also did not go unnoticed in what was a very strong balance sheet at the time.

This article though will be technical in nature and will interest investors who like to base their decisions on chart-action and not on fundamental drivers. In fact, technicians or chartists believe that ADES’s technicals are merely the result of every piece of information (fundamental, psychological, etc.) known at the time. Suffice it to say, if the company’s share price is increasing, technicians believe its fundamentals are bullish, if ADES shares are collapsing, it means the company’s corresponding fundamentals are bearish.

Where technical analysis really helps the fundamentals-derived investor is in the area of timing. How many times have you bought a value stock only to see its share-price flounder for months if not years on end? Take ADES for example. Shares are trading with an earnings multiple of 1.9, a book multiple of 0.8, a sales multiple of 1.2, and a cash-flow multiple of 4.5. The company’s debt to equity ratio is 0.05 and its interest coverage ratio is 52.06. Suffice it to say, given the company is profitable, cheap, and has plenty of equity, the odds have to be stacked in favor of a trending move here to the upside. Or do they?

This is the problem with just looking at the numbers, be it profitability, valuation, etc. They can literally tell you what you want to believe (emotion) instead of telling you what investors (market) really think of this stock.

Monthly Chart

This brings us to the long-term chart of Advanced Emissions Solutions, Inc. which really can be insightful for long-term investors. As we see below, despite the lower multi-year high in 2019, it could be said that shares are undergoing a symmetrical triangle which more often than not ends up being a continuation pattern. To confirm the pattern, shares would have to break out above that upper trendline which is north of $10 a share. The red line (depicted below) gives an idea of the potential upside (substantial) if indeed shares manage to eventually break out.

The worrying trend though on the long-term chart is the converging moving averages that make up the MACD indicator. This trend is confirmed by means of the declining histogram. Suffice it to say, from a momentum standpoint, ADES’s long-term price action is telling you clearly that now is not the time for a long-term buy-and-hold position. Only when shares get back above their 10-month moving average followed by a crossover of the MACD indicator into positive territory would we return to the possibility of a symmetrical triangle breakout above $10 a share.

Technical chart of ADES

Long-Term Symmetrical Triangle In ADES (Stockcharts.com)

Weekly Chart

The near-term softening we see on the monthly chart can be seen more clearly on the weekly chart of ADES below. Although shares ($6.29) are currently trading above their 10-week moving average ($6.18), we have a potential descending triangle in play that is bearish in nature. The pattern would not be confirmed until support fails to the downside. Given the fact that shares managed to recover from their $5.63 lows on the 9th of March last, trend followers should allow some margin with their stops if the $5.75 level is breached once more. A good entry point for bulls on the other hand would be a penetration of that upper trend-line on strong volume. This would confirm a new bullish trend to the upside.

Technical Chart Of ADES

Bearish Triangle In ADES? (Stockcharts.com)

Daily Chart

On the ADES’s daily chart, we see that shares are trading below their 200-day moving average (with the average having now turned down) and that money flow has now turned negative. The 200-day moving average is the most popular moving average used by traders and we see here once more how it acts as major resistance once it is broken. As we see below, shares broke below their 200-day moving average in January of this year. They then tried to regain this level on three occasions in February and then twice in March but all three attempts failed. This leads us to believe that short-term weakness may prevail for some time in ADES.

Technical Chart Of ADES

Daily Chart Of ADES (Stockcharts.com)

Conclusion

ADES initially came to our attention from a screen we ran where we looking for profitable value plays with strong balance sheets. Technically though (which is all about timing an investment), all three charts are pointing to some weakness at least in the short term. Taking into account our long-bias overall, we will continue to wait for a bullish trend early in its development. We look forward to continued coverage.

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