GIMO Stock: Holding the Line
Gigamon Inc (NYSE:GIMO) stock dropped on April 28, following its earnings report. The catalyst for the drop in the share price has been a result of lower-than-expected forward guidance. GIMO stock has since settled near the $30.00 mark. This price point is an extremely important level that Gigamon stock is currently testing. Holding above this level would suggest that the drop from the high of $60.35 was in context of a normal pullback within a bullish trend.
Before I move forward, I need to quickly clarify for those who are not familiar with the method of investment analysis that I employ. I analyze a company’s price charts to generate a view on its potential as an investment. This method of investment analysis is known as technical analysis, and it is based on the notion that historical price and volume data can be used to discern a trend and forecast future prices. This may sound like a silly notion, but this method of analysis has brought me great success, and perhaps many of my followers can attest to the value of this method.
This is not my first time covering Gigamon stock. On January 18, 2017, I published a report titled “Gigamon Inc: The GIMO Stock Chart Foresaw This Sell-Off.” In that report, I outlined key developments that implied that lower prices were likely, and I also outlined a key level of price support, where Gigamon shares were likely to find their footing.
The following price chart illustrates this key level of price support.
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 primary trend, shares will retrace approximately 50%-62% of the primary move, before the predominant trend reasserts itself.
The popularity of the 50%-62% retracement level among traders has coined the term trading into “the box.” This zone usually offers support as traders will be eyeing this area as one to enter long positions or cover short positions. GIMO stock has been trading in the box since it entered it in January 2017.
If there is any chance that GIMO shares are still within the confines of a predominantly bullish trend, this level of price support just below $30.00 must hold. If Gigamon shares trade below this level on a sustained basis, it means that lower prices are set to prevail.
At this current juncture, GIMO shares are trading above support, so my inclination is to remain neutral. I would wait for the indicator illustrated on the following Gigamon stock chart to turn up before I tilt my inclination into the bullish camp.
Chart courtesy of StockCharts.com
The price chart above illustrates the trend that contains higher highs and higher lows. This creates the quintessential characteristic of a bullish trend. This trend is easily defined using an uptrend line. This uptrend is created by simply connecting the troughs on the price chart.
As long as GIMO shares are trading above this trend line, it is difficult to assume anything other than a predominantly bullish trend is still intact. It is not a coincidence that this trend line currently coincides with support outlined by the Fibonacci retracement numbers, which serves to suggest that support is strong at this level.
The moving average convergence/divergence (MACD) indicator has been instrumental in suggesting when price is set to separate from the trend line. To quickly clarify, MACD is a simple and effective trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum.
A bullish cross serves to suggest that bullish momentum is influencing the price of Gigamon stock, and as a result, the path of least resistance is geared towards higher prices. A bullish cross has correctly implied in the past, that price is set to accelerate, and this was seen as the stock price separated itself from the trend line. This separation from the trend line continued until a bearish cross was generated.
A bearish cross is the opposite of a bullish cross, implying that bearish momentum is influencing Gigamon shares, and as a result, it is geared towards lower prices. While this bearish indicator is engaged, GIMO shares have returned to test the trend line.
The MACD indicator is currently converging, and if price can remain above the uptrend line, a bullish cross will be generated in the not too distant future. This will once again suggest that higher prices will prevail, as GIMO stock is set to separate from the trend line.
Bottom Line on GIMO Stock
Gigamon stock is testing a critical support level, and the bull market in this investment hangs in the balance. If GIMO stock can remain above this level of support for a few weeks, a bullish indicator will generate, which will support the notion that higher prices will prevail.