AMBA stock: Targeting the Box
Ambarella Inc (NASDAQ:AMBA) stock is a prime example of when my trading strategy is successful. I first focused on AMBA stock in July, when I outlined the major bottoming pattern that was in play.
The performance to date speaks for itself.
My strategies use stock charts as the basis, and this technique is known as Technical Analysis (TA). I did not come up with this framework on my own; I only wish I was such a brain and was able to contribute something on this level. I am only a student of TA and I have been using this style of investment analysis for greater than a decade, and I have had much success in doing so. I can only offer my interpretation, and what I have learned in applying this style of investment analysis.
There are a few key items that I have learned in my time. Signals are great when they work, but when these signals fail, they also must not be ignored. I will cover failed signals on another ticker because AMBA stock is very obedient to technical signals, and it is probably why I am enamored with this disciplined name.
The following Ambarella stock chart illustrates a textbook version of what a trend reversal looks like.
Chart Courtesy of StockCharts.com
AMBA stock spent the first six months of 2016 putting in a double bottom. A double bottom is a reversal pattern that appears at the end of a trend. It is marked by two consecutive bottoms, separated by a peak in between. The pattern is confirmed when shares close above the peak that separates the two bottoms.
Double bottom patterns are also of great benefit because not only do they signal a change in trend, but they also produce a possible price objective. This reversal pattern projects a potential price target of $60.00.
The double bottom trend reversal was further confirmed when AMBA stock generated a golden cross in July 2016. A golden cross is a bullish signal that is produced when a faster 50-day moving average (highlighted in blue) crosses above a slower 200-day moving average (highlighted in red). It is always wise to trade in the direction of this momentum indicator because traders use this signal to confirm that a bull market is on the horizon.
The target price I obtained from the double bottom was $60.00, and that level was achieved in short order. The trend remains tilted to the upside so it pays to look for other potential price points that will act as resistance when they are reached.
The following Ambarella stock chart illustrates potential levels of resistance.
Chart Courtesy of StockCharts.com
Fibonacci retracement numbers (highlighted in green) are a very popular tool used by many technical traders. This tool is used to identify counter-trend price objectives. In theory, when a stock pulls back from a trend, shares will retrace approximately 50% to 62% of this move.
The box highlighted on the chart above represents the retracement area marked 50% to 62%. When shares trade into the box, it signals traders to exit their long positions, and to possibly start building a short position. Depending on what view individual traders have, these levels are an ideal area to execute their strategies, and will be watched by many.
From its current levels, the box is 10% to 25% higher than the price of AMBA stock is today. I am not saying this price level will serve to end this run indefinitely. I am only assuming that this will be an appropriate range for AMBA stock to take a breather before Ambarella stock can set up its next move.
Last Words on Ambarella Stock
I have been bullish on AMBA stock from the time I first wrote about this name in July. I expect the current run to continue until resistance is met, outlined by the Fibonacci numbers. My bias will remain bullish for as long as the Ambarella stock chart gives me reason to be so. If the trend as depicted on the chart changes, so too will my bias.