TIVO Stock: Breakout Potential
TiVo Corp (NASDAQ:TIVO) announced after close of trading on November 28, 2016, that it has entered into a licensing agreement with Netflix, Inc.(NASDAQ:NFLX). The agreement will act to further integrate Netflix within TiVo set-top boxes. TIVO stock investors were gleaming with joy based on this news release, and they sent shares advancing 9.64% to $22.75 in after-hours trading. This price is just shy of a new 52-week high.
At first glance, this news can seem like a non-event because Netflix is already available on TiVo set-top boxes, but the stock price seems to have a different story to tell. There is a large constructive pattern currently playing out on the TIVO stock chart and this news might be the catalyst that can send TIVO stock soaring beyond the 9.64% that has already been priced into the stock in afters-hours trade.
The following TIVO stock chart illustrates the setup pattern going into the news event.
Chart courtesy of StockCharts.com
TIVO stock was expected to open trade at approximately $22.75. This price is just shy of the horizontal resistance that sits at $23.50, and is highlighted in purple on the stock chart above. A break above this level would be a tremendous feat for the bulls and it would suggest that much higher prices are yet to come.
A test of resistance is almost a given, but the question that remains is whether the price will be rejected or break through.
The TIVO stock price has been acting in a bullish manner since the middle of 2015, where TIVO stock put in a bottom. This bullishness is reinforced by the bullish indicators and similar price action.
A golden cross was generated in January 2016. This indicator is generated when the 50-day moving average, highlighted in blue, crosses above the 200-day moving average, highlighted in red. The signal is a momentum indicator that indicates that a bull market is on the horizon. The signal creates a bullish tailwind and, as a result, when this signal is engaged, bullish patterns have a higher probability of success.
It is not a coincidence that an uptrend began to develop shortly after the golden cross was generated. This trend is created by connecting the troughs on the price chart and, as long as TIVO stock is trading above it, the trend remains bullish.
The support and resistance trend lines are converging, and this creates a triangle pattern. This triangle is actually just a small piece of a much larger pattern that is setting up, and this pattern is more constructive than a mere triangle.
The following TIVO stock chart illustrates the larger bullish pattern.
Chart courtesy of StockCharts.com
The larger pattern that is playing out on the TIVO stock chart is referred to by traders as a “head and shoulders bottom.” This pattern consists of three troughs and a neckline, where the middle trough (the head) is the largest, and the first and third trough (the shoulders) are usually of equal size. The neckline is formed by connecting the reaction highs. This pattern is confirmed when the price closes above the neckline.
These patterns are constructive on many levels. Aside from confirming a trend reversal, these patterns also provide a very necessary price objective that can be used to create a trading strategy around.
A price objective can be obtained by extrapolating the depth of the head above the neckline. Under this premise, the target price upon a successful completed head and shoulders bottom is $39.00.
Bottom Line on TIVO Stock
The news surrounding the licensing agreement with Netlix has the potential to send TIVO stock soaring. In order for this possibility to occur, TIVO stock needs to complete a bullish pattern by closing above the resistance level at $23.50.
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