Sometimes Stocks Just Run Out Of Steam

NAPCO Security Technologies (NSSC) is a stock that I'd rarely trade.

While it's been a tremendous winner since mid May, NSSC typically sees volume in the 100,000-200,000 share range. That's not much, especially for a stock that trades for under $30 per share. Still, I thought NSSC has a very interesting chart and I wanted to share a couple things:

Enter NAPCO Security Technologies (NSSC):

NSSC has risen roughly 80% since May, which is quite a surge. Its peer group - electronic equipment ($DJUSAI) - broke an extended relative down channel, so both the industry group and NSSC has shown much improvement in recent weeks.

Despite this, and solid volume trends, NSSC has been showing slowing price momentum, as evidenced by a negative divergence - higher prices, lower PPO. In particular, Monday's big reversal with a false breakout suggested further weakness on Tuesday, which we saw. Failure to hold onto 20-day EMA support could quickly turn this into something a bit more nasty. Many times, negative divergences result in a PPO centerline "reset" and/or a 50-day SMA test.

What Does This Mean?

• Don't be shocked if NSSC runs into more struggles ahead, especially if the 20-day EMA gives way.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.