Trade Setup: TEAM

Atlassian Corp (TEAM) had its initial public offering (IPO) in December 2015. Since that time the price has displayed interesting behavior from a long perspective.

During the beginning of 2016 TEAM declined rapidly along with the rest of the market as global economic fears were pervasive among market participants. Since that decline, TEAM found support in early February 2016 as seen by the two reversal candlesticks on the weekly chart.  The weekly reversals in price were accompanied by an increase in volume both weeks which indicated that $20 is a meaningful level of support from a weekly bar perspective.

In mid-May 2016 TEAM formed a higher low around $22 and also exhibited a reversal candlestick at this level. Upon clearing prior resistance in June 2016 volume accelerated again for four weeks indicating conviction in the move higher.

Zooming in one order of magnitude shorter, the daily chart shows that after the breakout out above previous resistance between $24-25 TEAM retested the $23 area before resuming its advance. Retests are common on breakout trades. In the case of TEAM, there is nothing of concern with its price action on the retest. In fact, pullback traders may have even successfully bought the textbook advance off of $23.

Since the breakout TEAM advanced steadily to its post-IPO high where it is currently testing support at prior resistance. The most recent daily candlestick displays a reversal move at the $30 level which also corresponds to the highest weekly close post-IPO.

Traders should look for signs of a reversal higher off of this level to initiate a long position. Only open a trade once the price begins to prove itself based on your expectation. In other words, there is no reason to be long TEAM until it begins to trend up on the shorter timeframe. This reversal candlestick could be nothing more than a random one day occurrence and traders must act on what really happens, not what could.

If TEAM does advance from this level of support, risk can be managed tightly just below the most recent swing low at $29 or even $30 for a pullback trade. Overall, the stock is offering an attractive potential risk to reward multiple pending an advance from here.

As always, please feel free to contact me with any comments or questions. Thanks for reading.

John