Seagate Technology PLC: This Is Where STX Stock will Find Support

STX stockSTX Stock: Eyeing Support

Seagate Technology PLC (NASDAQ:STX) is a company that designs and develops state-of-the-art storage devices, as well as storage solutions for the enterprise and consumer clienteles. Its products create the infrastructure that powers the cloud.

The cloud allows users to process and access data from third-party data centers. This segment of the economy has provided the growth that many tech companies seek, and has helped propel companies like Seagate to new all-time highs. STX stock has been lagging its counterparts, but I believe that relationship has changed.

I have been using company stock charts to create systematic and strategic trading strategies for over a decade. This process has kept my trading disciplined and void of emotions, as stock prices dictate my next moves, and my level of risk is always predetermined. This doesn’t guarantee my risk, as price shocks are always possible.

My bullish opinion on Seagate stock is based on its price chart, and this bullishness was created when a trend was broken to the upside.

The following STX stock chart illustrates the trend that was broken.

stx

Chart courtesy of StockCharts.com

The downtrend, highlighted in blue, is the focus of the Seagate stock chart above. This line is created by connecting the peaks on a price chart. This bearish trend is defined by lower lows, which are confirmed by lower highs. There should be no confusion surrounding this trend, and it can easily be identified as the price moves from the upper left to the lower right.

STX stock managed to finally break above this downtrend line in September 2016, and this event was highlighted on the chart above as a breakout. This accomplishment signals an end of the bearish price action, which indicates an end to the downward price pressure.

It is not uncommon for a stock price to trade back and test a previous level of resistance from above to reaffirm the breakout, and then establish a new level of support. This price action is referred to by traders as a backtest.

I have reason to believe that the market will endure some weakness in the coming days as the U.S. election looms, and an interest-rate decision is expected from the Federal Reserve. This may put pressure on STX stock, and it increases the likelihood that the price will perform a backtest.

The following Seagate stock chart illustrates other levels of price support that could be tested.

stx2

Chart courtesy of StockCharts.com

There are two distinct levels of support that are highlighted on the STX stock chart above.

The first level of support is from the 200-day moving average. This moving average is the dividing line between stocks trading in a bull market versus stocks trading in a bear market. When a share price is above the moving average, it is bullish; when a share price is below the moving average, it is bearish. It is common for stocks to find support and resistance from this trend line, as traders will be eyeing this average as the price approaches it.

The second level of support is from the uptrend line. This trend line is created by connecting the valleys on the price chart. This line represents the new bullish trend in Seagate stock that began after STX stock bottomed in May 2016. This new trend is characterized by higher highs and higher lows that dominate this bullish trend.

Both of these indicators are now converging on one price just under $30.00. This level also coincides with the downtrend line on this first chart. If uncertainty regarding the election and the Fed’s interest rate policy causes the markets to sell off, $30.00 is going to be a key area to watch for support.

I would actually welcome a test of this support level as an opportunity to set a possible trading strategy. I do not see this level breaking on the first attempt, as three different metrics are converging on one price.

The Bottom Line on Seagate Stock

I am bullish on Seagate stock, but I would wait for clarity with regards to the election and interest rates. A test of support near $30.00 would provide a good area to reassess this position, and set an appropriate trading strategy. If the price fails to hold at this level, I would have to abandon my bullish bias on STX stock.