Apparently no one mentioned to Wave Systems Corp. (WAVX) that we’re in the middle of a rout for small-caps, growth stocks, and tech plays. Wave Systems spiked over 50 percent on news that it was expanding its collaboration with Micron Technology (MU) to develop solutions to protect users from emerging security threats.
Huge Gains for Wave
Micron Technology saw gains just over 1 percent on a choppy day of trading that saw tech stocks advancing briefly, retreating heavily, and then finally rebounding after 1 pm ET. Micron’s day appeared to mirror the broader moves of the market, but Wave Systems bucked the trend entirely.
Opening up about 20 percent at $1.21 a share, Wave proceeded to take off, rapidly climbing to its peak of $1.97 a share before 11:30. The stock fell off that early peak hard but still traded over $1.50 a share for the rest of the day.
Volume was extremely heavy, with more than 20 million shares changing hands heading into the final hour of trading. Wave’s average daily volume prior to Tuesday was just 314,000. With a total float of just over 35 million shares, this represents nearly 60 percent of available shares changing hands in a single day.
Collaboration Addresses Growing Consumer Needs for Security
Wave’s collaboration with Micron is expected to reap significant benefits for both companies as the trend towards mobile devices and cloud computing give rise to an array of new security threats. Specifically, Wave, which specializes in hardware-based digital security, and Micron, a global manufacturer of semiconductor devices, are going to focus on detecting and dealing with advanced persistent threats (APTs), the most advanced types of malware that are capable of infecting a wide array of IP-enabled devices.
"The many benefits of increased connectivity with IP-connected devices create a new class of threats. We're pleased to collaborate with Wave because they have pioneered innovative approaches in the early detection of APTs," said director of Micron's client segment, Andreas Schlapka.
Online security has been given a renewed focus following the massive security breaches for retailers like Target (TGT) this winter, and 2013 saw nearly 1.5 million security breaches from laptops, cell phones.
"We're pleased to be working with Micron in developing advanced solutions that combine hardware and software security protection," said Wave CEO Bill Solms. "Our expanded agreement will allow us to build on our existing software solutions and take security of client applications to the next level."
Technical Data Could be Supporting Bounce
The news of this new collaboration was clearly the catalyst for the day’s big move for Wave. With a market cap just over $35 million prior to Wednesday, Wave was clearly trading firmly in the micro-capo region. Micron, though, has a market cap north of $23 billion, making any collaboration a huge opportunity for Wave.
However, some of Wave’s huge run-up can likely be attributed to technical and momentum traders jumping on board once the stock started to take off on the news of the new deal.
A look at Wave’s stock chart shows a lengthy downtrend from its 52-week high of $2.68 a share reached in late July of last year. During from that point, a downward-sloping resistance line developed that had appeared to be holding the stock back since the end of February.
However, since the start of February, a rising support line also appeared to develop, creating a clear triangle pattern that was quickly converging. With a breakout clearly brewing in the last few weeks, today’s initial positive move could easily have swayed traders into buying the bullish breakout from that pattern and prompting a run on the stock by momentum buyers trying to capitalize on its big rise.
And a look at the technical data likely supports this. While today’s buying spree pushed both the 14-day RSI and 14-day stochastic RSI well into overbought territory, it also resulted in the MACD line crossing the signal line from below, a classic buy sign for technical traders.
Clearly, the positive news is driving the gains, but the combination of the chart pattern and the move by the MACD line appear to be a big part of what has the stock soaring this high. Given that the stock’s gap up at the opening bell was only about 20 percent, was followed by a huge run that pushed gains to over 95 percent before retreating all while the markets as a whole were in a steep retreat, and that volume spiked so drastically; it would appear as though momentum trading is responsible for at least some of this rapid take-off for the stock.
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