VMW Stock: The Bull Charges On
In my previous report on VMware, Inc. (NYSE:VMW) stock, I outlined that a consolidation pattern had developed, which suggested that a price surge was to be expected. I had added that because the tailwinds were currently bullish, a bullish breakout would take shape due to the surge in price.
I am happy to say that a bullish breakout has come to fruition and that the bull market in VMW stock remains firmly intact.
For those not familiar with my methods, I use technical analysis to analyze potential investments. This style of investment analysis uses past price and volume data to discern trends and forecast future prices. I have been using this method for a over a decade to create effective trading strategies.
It was technical analysis that first suggested that a bull market had begun, and it continues to support a bullish outlook.
The following chart illustrates the pattern that suggested that a spectacular move in VMware stock was expected.
Chart courtesy of StockCharts.com
The pattern suggesting that a surge in price was developing was the consolidation triangle highlighted above. This consolidation pattern is a symmetrical triangle that contains two converging trend lines. One line represents resistance and the other represents support. Triangles are particularly explosive because, as the pattern progresses, momentum is gained and stored.
The scope of this breakout has yet to reach its full potential. The target price of this pattern is obtained by using the prevailing surge in price that led into this consolidation wave. Based on this theory, a surge of $22.00 in the VMware stock price is now expected, and this creates the $92.00 price objective.
VMware stock did break out in spectacular fashion, but the price did not shoot higher as I had excepted. Instead, VMW stock has taken on a constructive ascending channel that has contained the price as it oscillates higher.
The ascending channel that has been created is similar to the channel that is illustrated on the VMware stock chart below.
Chart courtesy of StockCharts.com
The VMware stock chart above illustrates a channel that is similar to the one that is illustrated on the first chart I provided above. This is a prime example of a financial instrument containing a particular price characteristic.
There are two parallel lines that define this bullish price characteristic, and the pattern is known as an ascending channel. The trend lines define the support and resistance. VMware stock effectively oscillates between these levels as the trend continues to develop in a bullish direction.
The price channel had been reaffirmed by a golden cross that was generated in late June 2016. A golden cross is a bullish signal that is produced when a faster 50-day moving average (highlighted in blue) crosses above a slower 200-day moving average (highlighted in red). Traders use this signal to confirm that a bull market is on the horizon. I find it wise to trade in the direction of this momentum indicator, and it is not uncommon for the price to accelerate in the direction suggested by this signal.
Support is currently outlined by the lower trend line that makes up the ascending channel on both charts, and it is also currently sitting on the 50-day moving average. This level now marks an extremely important level of support, and I would use it to define my level of risk.
If the price would fall below these three coinciding levels, I would have to step back from my bullish view and believe that lower prices were set to prevail. At the same time, three coinciding levels of support are suggesting that support is quite strong and that a break is not expected, although it is possible.
Bottom Line on VMware Stock
I am still bullish on VMware stock, and the price action supports holding this view. The bullish price objective of $92.00 suggested by the VMW stock chart is now in play.