This Is Why Weakness in Workday Stock Can Be Embraced

Workday StockWDAY Stock: Establishing Support

It has only been a couple of weeks since I published a report on Workday Inc (NYSE:WDAY) stock, but there have been some significant developments that need to be addressed. There was a swift sell-off that occurred last week that saw the Nasdaq index drop by a substantial amount over a two-day period. The sell-off marked the worst-performing week for the tech-heavy Nasdaq index for this given calendar year.

This sell-off caused WDAY stock to shed approximately $10.00 of its share price over that two-day period. The focus of this publication is to illustrate that this sell-off did absolutely no damage to the bullish implications that were already being suggested by the Workday stock chart. In actuality, the sell-off served to reinforce these bullish implications.

My bullish view on this investment was created by analyzing the price action and indications that were generated on the WDAY price chart. This method of investment analysis is known as technical analysis, and it is my preferred method of choice when analyzing a potential investment. My preference is based on the fact that this method utilizes price and volume data to generate signals. Therefore, the information provided is very timely. Timely indicators are of the utmost importance when creating a proper investment strategy.

The following Workday stock chart illustrates the technical indications that initiated my bullish view on this investment.

Workday stock chart

Chart courtesy of StockCharts.com

My bullish views on WDAY stock is based on the technical price pattern that is highlighted on this stock chart.

The pattern that was completed in May, via a breakout, is a “cup and handle” price pattern. This technical price pattern is created as a result of a significant level of price resistance that is highlighted in blue on the stock chart above.

This level of price resistance served to thwart the two previous attempts at moving beyond it. The first time this level was reached, a sizable sell-off ensued, and WDAY stock lost 29.52% of its market value before it was finally able to find its footing and stage an advance. The second time this level was reached, a smaller sell-off ensued where Workday shares proceeded to drop by 12.81% before Workday stock was finally able to forge a bottom and stage an advance. As the saying goes, “the third time’s a charm.” On its third attempt, the stock was finally able to break above this level of price resistance.

The two reactions off this significant level of price resistance are what caused the cup and handle pattern to form, and it was the generation of the golden cross in March 2017 that first suggested that this pattern was on the verge of completion. A golden cross is a bullish indication that is produced when the faster 50-day moving average crosses above the slower 200-day moving average. This popular indicator is used to confirm that a bull market is in development because it serves to suggest that a bullish trend towards higher prices has begun.

This completed technical price pattern is now suggesting that higher Workday stock prices are likely to follow. Not only does this pattern suggest these bullish implications, but it can also be used to create a potential price objective. This price objective is obtained by taking the depth of the cup and extrapolating that value above the aforementioned significant level of price resistance. This method creates a potential price objective of $119.00. This price objective can be used as a basis to create an appropriate investment strategy.

The sell-off that gripped the markets last week caused a swift sell-off in WDAY stock, and the previous level of resistance that created the cup and handle acted as a level of price support. This great thing about technical analysis is that once a significant level of price resistance is broken, it is expected to act as a level of price support. Returning to test a previous level of resistance from above is so common that it is referred to as a “backtest.” This backtest serves to reaffirm that the previous break above resistance was legitimate, while simultaneously establishing this price point as a new level of price support.

This new level of price support also defined the risk in this investment because breaking back below it would negate the bullish view that was generated by breaking above it. Taking out the previous high at $105.00 would suggest that the bullish implications set out by the cup and handle pattern are set to play out.

Bottom Line on Workday Stock

The weakness endured last week as the markets sold off served to reinforce the price pattern that is suggesting that a bullish view on Workday stock is warranted. As long as WDAY stock remains above price support, I will continue to believe that higher stock prices are likely to follow.