Nintendo Stock Is Breaking Out, Pointing to Higher Prices

Nintendo stockNTDOY Stock: BREAKOUT!

Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY) has produced some of the most iconic games in history, and I had spent much of my youth indulging in Nintendo consoles and the wonderful video games they’ve had to offer. Even though this places Nintendo close to my heart, I can assure you that this affinity with my past has not swayed my judgments when it comes to NTDOY stock.

I am returning to Nintendo stock to follow up on a report that I published earlier this year titled “Nintendo Stock Chart Is Favoring the Bulls.” In this report, I outlined that there are a number of indications that were supporting price, which also suggested that a bullish outcome was a possibility. This possibility is now coming to fruition, and as a result, I believe that higher Nintendo stock prices are now on the horizon.

For anyone who is not familiar with my work, I use technical analysis to generate my views on a potential investment. This method of analysis is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. As a result, the price chart is where I generate the indications that produce my investment views.

In my previous report, I had outlined that $24.00 was an important level of price support, and the following Nintendo stock chart illustrates how I defined this level of resistance.

wii2

Chart courtesy of StockCharts.com

This chart clearly illustrates that $24.00 is a key price point. Prior to July 2016, Nintendo attempted to break above this level on multiple occasions, and each time this effort was thwarted.

On July 8 2016, The “Pokémon Go” mobile game went viral, and it was the topic of many media outlets as this mobile application took the world by storm. This enthusiasm sent a rush of buyers to NTDOY stock, and this caused the price of the stock to gap up above resistance.

This created the “breakaway gap” that is highlighted on the chart above. These gaps rarely get filled and almost always indicate that a new trend has begun. In the days that followed, Nintendo tested this important level at $24.00, indicating that the previous level of resistance at $24.00 is now a new important level of price support.

The following NTDOY stock chart reinforces the notion that important support lies at $24.00.

wii1

Chart courtesy of StockCharts.com

The price chart above is highlighting the Fibonacci retracement numbers. These retracement numbers are popular among traders, and they use this mathematical relationship as a tool to identify counter-trend price objectives. The theory behind Fibonacci retracement numbers is that once a primary advance is complete, price will pull back. This pullback will retrace approximately 50%–62% of the primary advance, before the predominant trend will reassert itself.

The popularity of this tool has caused traders to coin the phrase “trading into the box.” This phrase is in reference to the 50%–62% retracement of the primary advance. Traders use this level to apply appropriate trading strategies and the fact that this level coincides with the $24.00 level serves to reinforce the view that quite a significant amount of price support is present at $24.00.

The following Nintendo stock chart illustrates the pattern that has been developing above support, which is now suggesting that higher prices are likely to follow.

wii

Chart courtesy of StockCharts.com

While NTDOY stock has been trading above resistance at $24.00, a constructive pattern has developed. This constructive pattern is a consolidation triangle, which is one of two waves that creates healthy bullish price action.

Healthy bullish price action consists of two waves; an impulse wave that serves to advance price, and a consolidation wave that serves to alleviate any overbought conditions and set up the next advancing impulse wave. Healthy bullish price action allows a trend to remain sustainable.

The impulse wave occurred as price surged off the July lows, and this wave is highlighted in green. The consolidation wave has developed as Nintendo shares have been testing support at $24.00 and is highlighted in purple.

The consolidation wave has taken the form of a triangle. Triangles are particularly explosive patterns because, as the pattern progresses, these patterns store momentum. This is a result of the converging trend lines that create the triangle pattern. The longer it takes for this pattern to develop, the greater the momentum that is built up inside it. This momentum is finally released when price exits the pattern, and this energy is then used to create an impulse wave.

On March 17, 2017, Nintendo exited the consolidation pattern in an upward direction, and this event is highlighted on the chart above as a “breakout.” The breakout indicates that a new impulse wave is now set to develop and higher prices can now be expected.

This wave structure not only defines the next direction price will take, but it can also be used to define a potential price objective. This price objective is based on the notion that impulse waves separated by a consolidation wave tend to mirror each other. If I apply this logic to the structure that has developed above, it creates a potential price objective of $45.00. This price objective reinforces the notion that higher prices will prevail.

The moving average convergence/divergence (MACD) indicator, located in the lower panel, is reinforcing the view that a bullish breakout is now occurring. 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 is developing, which suggests that bullish momentum is now propelling NTDOY shares and, as a result, the path of least resistance is now geared towards higher prices.

Bottom Line

All the indications on the NTDOY stock chart are supporting the bullish view that higher prices are likely, and the completion of the consolidation wave serves to confirm this bullish view. I will remain bullish on Nintendo stock until there are indications on price chart that suggest another view is warranted.