DZ's $ATER (Aterian) Analysis — November 6, 2022
Multiple charts, short interest, call and put option data, and a possible emerging pattern for early 2023
Greetings fellow Aterians,
A big week is ahead for everyone in this stock (ATER 0.00%↑), with three major events coming up:
Earnings on November 8 (probably the top catalyst).
United States midterm elections also on November 8.
CPI report Thursday during premarket.
With all of the events this week, and their potential implications, it’s worth examining what the charts and the options chain tell us. Before we get into the analysis, I must leave this obligatory disclaimer:
Disclaimer: I am not a financial adviser, and nothing in this post should be taken as financial advice. This post is for educational and informational purposes only, and all opinions presented reflect those of the author. I am a retail trader trying to help other retail traders navigate these difficult market conditions. With this in mind, if you find the information in this post helpful for your own learning, consider subscribing to my Substack — every post I make is free for everyone, but if you’d like to show further appreciation by funding my massive coffee addiction, there is an option to become a paid subscriber too. I appreciate all who support my work!
Let’s get started!
1. ATER’s Daily Wedge Breakout
On Thursday, Nov. 3, Aterian FINALLY broke out of this wedge pattern… the same wedge that’s constrained ATER’s price since April confirmed an upside breakout move by closing at $1.06 (wedge boundary was $1.03 for that day). On Friday, Nov. 4, ATER completed a backtest, touching the wedge boundary (near $1.01, before closing above at $1.02).
Annotated in the above chart are ATER’s 20, 50, 100 and 200 day moving averages, which are (respectively) $1.08, $1.63, $2.10, and $2.78. Every respectable (or evil, depending on your personal feelings) HFT algorithm uses these moving averages as key pivot points in the price. With ATER so close to $1.08, a break and hold above $1.08 would be significant for the stock. Note that ATER has tested and closed below it’s 20 DMA for eight (!!!) consecutive trading days.
To re-emphasize, a close above $1.08 would add another bullish footnote heading into ATER’s earnings on Tuesday.
2. Two scenarios (roadmaps) if ATER pops on earnings
Following my long-running hypothesis that ATER runs on earnings, and making the following key assumptions:
ATER immediately tests it’s 50 day moving average (currently $1.63) after earnings.
ATER retraces 38.2% of its move between $0.97 and $1.63 (trading range between all-time low and its local high assuming an earnings beat and move up).
This is the chart solution I come up with (NOT financial advice):
A 38.2% retrace would take the stock back to around $1.38 a share. Any bullish setup for a further move up usually retraces 38.2%. In my opinion, such a move would come from (1) ATER beating earnings, causing a rapid pump in the stock price from the low $1 range to $1.63 (perhaps in after-hours Tuesday or pre-market Wednesday… also note the 50 DMA will change by a few pennies by Wednesday, so keep note of this). At which point, it’s very reasonable to assume that there will be profit-takers up here (anyone who bought at $1 a share and sells at $1.50-$1.60 is banking a 50-60% profit!), so in my opinion, the most important move doesn’t come from IF ATER beats on earnings, but rather the MAGNITUDE OF THE RETRACE after the earnings beat if it happens.
With this in mind, here is a second scenario which is plausible (a 61.8% retrace of the 50 DMA):
This case is obviously less ideal, but in any case offers the potential of filling the gap left at $1.85 (still a substantial gain from the current price of $1.02). I personally think (my opinion here) this price becomes much more likely if ATER rallies Monday or Tuesday to $1.22+, as this would lessen a lower gap that would need to be filled after earnings.
If we gapped up from $1.10 to $1.60+ on earnings, the HFT algorithms would at some point have to fill the gap back to $1.10… a scenario nobody wants! Hence… a higher jump-off point into earnings would make for less of a gap fill if there’s another leg up to $1.85 in these scenarios.
Of course… a lot can happen, and there are many paths. The above 2 scenarios are presented as “textbook applications” as to (1) what levels/prices HFT algorithms like to use as support or resistance, and (2) what Fibonacci retracement levels are used by these same algorithms before a further upward move.
3. A quick note about ATER’s short interest
I’ve never been one to care much about ATER’s short interest, as (in my opinion) it obfuscates price action. But looking at Unusual Whale’s IBKR data, shares available to short are as high as they’ve been in months (a sign that there has been a LOT of short covering near these lows).
Nearly 2.0 million shares available to short… If this number goes down after the next run-up, that will be a clue (or sign) a local top is being reached.
4. Call and Put option open interest (OI)
Let’s take a look at call and put option open interest.
ATER’s Call Option Chains through Jan. 2024:
ATER’s Put Option Chains through Jan. 2024
Unsurprisingly, the options chain for this small-cap stock is relatively void of significant options bets. There is less than 250 total open interest in put options for next week, meaning extremely few folks are betting on ATER closing below $1 after earnings this coming week. By contrast, ATER has over 3,700 OI contracts (accounting for 370,000 shares or ~1% of the tradable float!) for the next two expirations. Overall, call option OI vastly outweighs put option OI.
From my personal experience trading small cap options: it’s much more difficult to get rapid moves up when significant amounts of the float are tied up in options — meaning the market makers end up “pinning” the price with their massive balance sheets to ensure they don’t lose too much money on runaway gamma squeezes. If anything, any smart money will have loaded their options by now and once there’s a significant price break in either direction… that’s when “dumb money” starts FOMOing in to calls or puts (at which point they’re paying a premium for higher IV).
To conclude the last two subsections: ATER is ***NOT*** set up for a short squeeze nor a gamma squeeze, based on the percentages of short interest and option OI.
5. A possible inverse head-and-shoulder setup for early 2023?
As my final bit of analysis… if they do end up confirming this breakout this week and sending ATER $1.85+ over the next 1-2 weeks, this breakout *may* be a setup for a much larger rally in early 2023. With all the economic calamity on the horizon, yet with other small caps or retail favorite assets (think: MULN with it’s recent $0.25 to $0.60 run, Dogecoin’s recent $0.05 to $0.15 run), ATER seems destined to have a short term pop followed by another painful dump into the end of the year. In doing so, it would fill out the following chart:
This is probably what most folks don’t want to hear… but hear me out as to why this seems likely. Assuming ATER breaks out on earnings:
There will likely need to be a gap fill after earnings (maybe the $1.20-$1.40 range?) after a run to the $1.85-$2.45 range.
A gap fill over the next 1-3 months would fill out an inverted right shoulder.
Assuming the SPX (and broader market) sees a significant bottom in early 2023, and marking THE bottom for the bear market, small caps (i.e., the IWM 0.00%↑ complex) would lead returns for a recovery.
Eventually, a retest of 61.8% of this daily retracement zone (see Figure 1 and the two scenarios discussed earlier, in addition to the above plot) would take ATER back to $4.86 in early 2023. 50% retracement = $4.12.
All of this is speculative and relies heavily on what happens this week with ATER’s share price, especially after earnings. If the “earnings thesis” which I’ve laid out here comes to fruition, I think ATER can get back to a respectable $4-5 a share by the spring time.
A lot can and will happen between now and the spring. I will update my thesis accordingly. For the short term… I’m quite bullish on ATER, and for everyone else taking the risk on this stock, good luck to you as well!
Take care fam, and hope we have a great week this week!
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Disclaimer: I am not a financial adviser, and nothing in this post should be taken as financial advice. This post is for educational and informational purposes only, and all opinions presented reflect those of the author. The author, Dr. Andrew Dzambo is a Ph.D. in Atmospheric and Oceanic Sciences who’s main profession is academic research in the areas of cloud remote sensing and cloud physics… but has a passion for understanding global markets, especially in the context of how weather and climate patterns can affect the global economy. Andrew is a retail trader trying to help other retail traders navigate these difficult market conditions.