Seagate Technology PLC: STX Stock Presents an Opportunity

STX StockSTX Stock: Testing Support

Seagate Technology PLC (NASDAQ:STX) stock was ravaged by a brutal bear market that began in late 2014. This bear market erased 70% of STX stock’s market value before the selling finally abated. It may be hard to believe, but this sell-off was actually constructive, and to this day, it still serves to reaffirm a bull market in STX stock that first began in 2012, and regained its footing in 2016.

These claims I have laid out are based on technical analysis. This methodology uses past price and volume data to discern trends and forecast future prices. Seagate stock abides by the rules set out by technical analysis, and as a result, it is a great candidate to create trading strategies around.

STX stock began trending higher after shares bottomed in 2016. The level at which support was found was not a coincidence.

The following Seagate stock chart illustrates the importance of the low that was created in early 2016.

stxx1

Chart courtesy of StockCharts.com

The trend line labeled “Horizontal Support” is the defining line between the bear market that contained the price of Seagate stock, and the bull market that has set STX stock free to soar.

This trend line was a level of resistance prior to 2012. During that time, it refuted every attempt by STX stock to advance above it. It was not until 2012 that the ceiling of resistance began to crumble, and Seagate stock was finally able to break free and advance above it.

When resistance finally breaks and it becomes an area of support, it is not uncommon for price to return to this level and test it from above. This is what traders refer to as a backtest, and it serves to reaffirm that resistance has indeed become support.

This is why it is not a coincidence that the bear market that ravaged Seagate stock was halted when it reached this level. This trend is so well established that anyone using the stock chart and a ruler could have anticipated that some sort of bounce would have occurred shortly after this level was reached.

Shortly after this bottom was established, the “MACD” indicator crossed in a bullish manner. Moving Average Convergence/Divergence (MACD) is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish momentum, and the bullish cross confirmed that a new bullish trend had commenced.

The following Seagate stock chart illustrates the bullish trend that developed following the test of horizontal support.

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Chart courtesy of StockCharts.com

A bullish ascending channel developed shortly after support was successfully tested. This bullish trend contains two parallel upward-sloping trend lines that represent support and resistance. Seagate stock has been oscillating between these trend lines for eight months and STX stock has doubled in that time frame.

In August, a golden cross was generated. A golden cross is a bullish signal that is produced when the 50-day moving average, highlighted in blue, crosses above the 200-day moving average, highlighted in red. This signal confirms and reinforces the view that a new bull market has commenced.

In order for this bullish trend, which was established in 2016, to continue, it must remain within the confines of the ascending channel. STX stock is currently testing support outlined by this channel, and the future of this bullish trend rests on STX stock’s ability to stay above support.

This trend line now defines the risk in Seagate stock, and if a trader chooses, he/she could use it effectively to create a trading strategy around.

Bottom Line on STX Stock

Seagate stock is great candidate for a trading strategy because of its adherence to technical rules. The current technical signals remain bullish and this suggests that the bullish trend should continue, but this is all predicated on STX stock remaining above support outlined by the ascending channel.