TWOU Stock: BREAKOUT
2U Inc (NASDAQ:TWOU) stock has just hit a milestone as it has created a new all-time high, and anyone who has ever bought any shares prior to today is sitting pretty with a slight grin on their face. On the surface, this is good news, but for a technical analyst like myself, there is very little that can get me more excited than what just occurred on the TWOU stock chart.
Just to clarify for anyone who is not familiar with my previous publications, I base my investment views on a potential investment by analyzing the prospective company’s stock chart. This method of analysis is known as technical analysis, and it is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. Before anyone dismisses this as nonsense, I must add that I have been using this method to create investment strategies for close to two decades and have achieved great success in doing so.
2U stock has been on my watch list for many months, and it has been the subject of numerous publications; on January 18, 2017, I published “2U Inc: TWOU Stock Chart Is Setting Up for an Epic Run.” In that publication, I outlined that there was a significant development setting up on the TWOU price chart, and that upon completion, this development posed an extremely bullish outcome. I was so excited at the potential of this development that I dubbed this investment a “trader’s paradise.”
2U stock recently completed this development, and this feat is suggesting that much higher stock prices are now on the horizon.
The following price chart illustrates the completed technical price pattern that is suggesting higher stock prices.
Chart courtesy of StockCharts.com
The price chart above illustrates the “cup and handle” technical pattern that has been in development since August 2015. This pattern is created when shares reach a level of resistance and a sell-off ensues. On the second attempt at this level of resistance, another sell-off ensues, but this is one is much smaller and shorter in duration than the first one. The pattern is finally completed when price breaks above the level of resistance that contained the share price on the previous two attempts.
The pattern on the chart above is very special because it is a very large cup and handle pattern. As is always the case when applying technical analysis, large technical price patterns produce equally large reactions when they are finally completed. Computing a potential price objective using this pattern is not difficult, to say the least. It is as easy as taking the depth of the cup and extrapolating that value above the horizontal level of resistance that contained price. Applying this method to the chart above produces a potential price objective of $63.00.
The “breakout” that is highlighted on TWOU stock chart above illustrates the share price closing above horizontal resistance. This bullish feat now puts the potential price objective of $63.00 in play.
The following 2U price chart illustrates the price action that led to this technical breakout and a technical indicator that is supporting this notion of higher prices.
Chart courtesy of StockCharts.com
The price action on the price chart above is divided into a two-wave structure consisting of impulse waves, highlighted in green, and consolidation waves, highlighted in purple.
Impulse waves serve to advance price, and consolidation waves serve to alleviate overbought conditions, and more importantly, set up the next advancing impulse wave. This alternating wave structure allows a trend to sustain itself.
2U stock has a defining characteristic where consolidation waves continue to develop as cup and handle patterns. Focusing on the magnitude of the rally that followed the first cup and handle pattern, it is easy to understand why I am so excited about the prospects of TWOU stock going forward. Now that the consolidation wave is complete, an advancing impulse wave is now set to develop.
This bullish wave structure is reinforced by the moving average convergence/divergence (MACD) indicator located in the lower panel. MACD is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish momentum.
In the past, when a bullish MACD cross was generated, it served to indicate that bullish momentum was propelling 2U stock, and that the path of least resistance was geared towards higher prices. The largest and longest bullish advancements in price occurred with this indicator engaged in a bullish position.
In February 2017, a bullish MACD cross was generated, and higher prices have since prevailed. This indicator reinforces the notion of a completed consolidation pattern, in which a new advancing impulse wave is now set to develop, and higher prices will prevail.
Bottom Line on TWOU Stock
I am extremely bullish on 2U stock now that it has completed a technical pattern that is suggesting that much higher prices are now likely. This extremely bullish view was created using the TWOU price chart, and until there are indications on this price chart that another view is warranted, I will remain bullish on TWOU stock.