Radcom Is a Small-Cap Stock That Is Setting Up to Move

RADCOM StockRDCM Stock: Small Cap with Big Price Action

There are certain characteristics that I look for in a potential investment, and when I find these characteristics embedded within a small-cap stock like RADCOM Ltd. (NASDAQ:RDCM) stock, I get really excited. If an investment contains these characteristics, then an applicable trading strategy is easy to apply, and levels of risk are easy to define. These are quintessential attributes that I need to set up a successful trading strategy.

These strategies are based on technical analysis, my preferred method of analyzing a potential investment. This method is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. So as a result, when I am referring to certain characteristics, these references are with regards to price patterns and technical indicators that are generated using the company’s stock chart.

The following Radcom stock chart illustrates the predominant trend that I am so enamored with.

The bullish trend in RDCM stock is easily identified by using a simple uptrend line. This simple uptrend line is created by connecting the troughs on the price chart above, and it serves to define the entire bullish run that began in 2008, in the midst of the financial crisis.

rdcm stock chart

Chart courtesy of StockCharts.com 

The bullish trend in RDCM stock is easily identified by using a simple uptrend line. This simple uptrend line is created by connecting the troughs on the price chart above, and it serves to define the entire bullish run that began in 2008, in the midst of the financial crisis.

This uptrend line has been in development for eight years, and it has been tested on numerous occasions. Every attempt to break below this trend line has been thwarted as buyers have continued to step in around this trend line to create the necessary support to keep it intact. The significance of this uptrend line is hard to refute, as it has become the dividing line between a bullish outlook for Radcom stock and a bearish one.

Simple uptrend lines like this one are found in tech heavyweights like Alphabet Inc (NASDAQ:GOOGL) stock and Microsoft Corporation (NASDAQ:MSFT) stock. Pristine trends like this one are not something I come across every day, so when I do, I get very excited. If I were to set up a trading strategy, the uptrend line would serve to define my risk. If RDCM stock ever fell below this trend line, I would have all the reason I need to exit the position and assume a bearish view.

The trading action above the uptrend line is another reason to get excited because it had been very constructive. This constructive price action is illustrated on the price chart below.

radcom stock chart

Chart courtesy of StockCharts.com

The price chart above is a great example of constructive price action and indicators working together in conjunction.

Constructive price action consists of impulse waves that serve to advance price, and consolidation waves that serve to alleviate overbought conditions and set up the next impulse wave. This alternating wave structure, which defines constructive price action, is the building block that allows a trend to remain sustainable.

In August 2016, when the impulse wave was in development, a golden cross was generated. A golden cross is a bullish signal that is produced when the faster 50-day moving average (highlighted in blue) crosses above the slower 200-day moving average (highlighted in red). Traders use this signal to confirm a bull market is in development, and I have found it wise to tilt my strategies in the direction suggested by this indicator. It is not uncommon for price to accelerate in the direction suggested by this indicator soon after it is generated.

A consolidation wave is now in development and it is serving to alleviate any overbought conditions that were created when RDCM stock appreciated from a low of $11.16 in July 2016 to a high of $22.35 in October of the same year. While this wave was in development, it tested the 200-day moving average from above. The 200-day moving average is the dividing line between stocks trading in a bull market versus stocks trading in a bear market. When the share price is above the moving average, it is bullish, and bearish when it is below the moving average. This successful test reinforces the notion that the uptrend will remain intact and that the consolidation wave will give way to another impulse wave.

The moving averages that generated the golden cross are now beginning to converge, and support outlined by the uptrend line is fast approaching. The indicators continue to support and advance, so I can only assume that the consolidation pattern will resolve itself in a bullish manner and another advancing impulse wave will develop in which higher prices will prevail.

Bottom Line on RADCOM Ltd.

Radcom stock is a small-cap stock that behaves like a large-cap stock. The indications on the RDCM stock chart suggest that higher prices are likely, and that a bullish view is warranted. I will continue to view this investment as bullish until there are indications on the price chart that another view is warranted.