Etsy Inc: If Esty Stock Pulls This Off, it will Skyrocket

Esty StockETSY Stock: Awaiting Launch

Coming into fall, the weather gets cooler, the leaves change color, and the markets gets jittery. This marks a time where it becomes wise to protect your profits and create a shopping list of potential names you want to acquire just in case a financial hurricane strikes. A great potential name is Etsy Inc (NASDAQ:ETSY), and I was lucky enough to spot ETSY stock before the position spiked higher in early August.

My attention was initially drawn to ETSY stock while I did my daily stock market scan. I use this scan to look for stocks that are setting up defined trading patterns. I was excited, and my excitement was due to my bullish findings.

The following ETSY stock chart illustrates the pattern that first drew my attention.

etsy

Chart courtesy of StockCharts.com

A  head and shoulders reversal was the first piece of evidence that suggested that a possible bottom was in place. A head and shoulders reversal pattern consists of three troughs and a neckline. This is when the middle trough—the head—(the largest trough) and the first and third troughs—the shoulders—are usually of equal size. The neck line is formed by connecting the highs that separate these elements. The pattern is confirmed when the price closes above the neckline and signals that a reversal is at hand.

A golden cross was the second piece of evidence that confirmed a trend reversal. 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). This signal is used to confirm that a bull market is on the horizon. It is always wise to trade in the direction of this momentum-indicator.

These two indicators have suggested, and have confirmed, that a trend reversal and a new bull market have now begun in ETSY stock. The following ETSY stock chart illustrates the potential bullish setup pattern.

etsy2

Chart courtesy of StockCharts.com

The chart above highlights the trading action that began in early August. Bullish trading action is littered with impulse waves (highlighted in green) that are followed by consolidation waves (highlighted in purple). These patterns are especially useful for traders looking to define their risks, as well as to find applicable entry and exit points.

The consolidation wave is a sideways channel and it has many bullish implications. The best-performing consolidation waves drift away from the predominant trend, just like the pattern above. A sustained close above $14.50 would give way to another impulse wave. This impulse wave should match the original impulse wave prior to the consolidation wave.  I could argue that this pattern warrants a potential target of $18.00 based on this setup. This represents a return of 31% from current levels.

One could also use this pattern to manage risk by using a break below the consolidation channel as a reason to exit the trade. Any one of many strategies could be used to effectively control risk. One could set up a stop-loss that is triggered when the share price hits a predetermined level, or is waiting for the close of trading to facilitate a trading decision. Either form of execution is at the trader’s discretion; the key is to note the important price levels and to not ignore them when these levels have been attained.

The Bottom Line on ETSY Stock

ETSY stock is currently sitting pretty in a consolidation wave that followed an equally impressive impulse wave. This type of trading is bullish, and healthy stock charts are littered with this type of bullish price action. Even though there is predominant weakness in the market at this point, my bias is still bullish on ETSY stock and will remain that way until the charts give me reason to be otherwise.