WDC Stock: Breaking Out
When I scan through charts, I look for particular patterns, signals and significant levels of support and resistance. If I am fortunate enough, I will come across a chart that piques my interest and grabs me by the seat of my pants. My favorite chart finds are usually the most simple ones, and the only tool I need to produce a trading bias is my trusty trend line.
Western Digital Corp (NASDAQ:WDC) has caught my attention, and I am eager to divulge my findings.
Western Digital stock suffered quite a setback beginning in 2015, as the share price was decimated, falling 68% in just over a year. It is not the slide in price that caught my attention, but the position at which point the slide in WDC stock terminated. Stock prices have a tendency to gravitate toward previous levels of support and resistance, and this is exactly what happened with WDC stock.
The following chart illustrates where the slide in Western Digital stock halted.
The chart above illustrates that the long-term level of support lays at $40.00. This level is highlighted with a blue horizontal trend line. This level served as resistance from 2009 to 2013, and was tested numerous times before it was finally broken. As is always the case with major levels on a price chart, when a major level of resistance is finally broken, it becomes a level of support.
It is not uncommon for shares to trade back and test a previous level of resistance, but it does become a little uncomfortable for some when such a situation unfolds after a big run in a stock. The pain that follows is usually sharp, but savvy investors know where support lies.
The WDC stock price of $40.00 is a major level of support, and any unforeseen market turmoil could cause this level to be tested again. Markets do not often give investors a third chance at a given level but, if it does, I’ll be waiting with both hands ready to catch some bargains.
The following Western Digital stock chart illustrates recent positive developments that suggest a new bullish trend has developed.
Chart courtesy of StockCharts.com
In September 2016, Western Digital stock generated a golden cross. 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). It is always wise to trade in the direction of this momentum indicator, as many prolonged runs have begun on such a signal.
Traders continue to use this signal to confirm that a bull market is on the horizon and, from my experiences, trends tend to accelerate after this signal is engaged. So it is not a coincidence that WDC stock broke out to a new 52-week high shortly after this signal was generated.
The following Western Digital stock chart illustrates the latest development.
Chart courtesy of StockCharts.com
The trend line highlighted in blue on the WDC stock chart above illustrates the predominate bearish trend that has served to contain price during this nasty slide in share price. In order for the bulls to fully rejoice and claim any victories, this line must be broken.
The major trend line is currently being tested, and the weekly close above this line would suggest that the bear market that began in 2015 is over. With the bear asleep and back to its hibernating ways, this leaves the bulls a chance to once again take control of WDC stock and perhaps challenge the previous high.
The Bottom Line on Western Digital Stock
I am bullish on Western digital stock, and the charts I provided above support my premise. WDC stock is on the verge of breaking a downtrend line, and that would further reinforce my bullish view. I will continue to be bullish for as long as the charts justify this bias; if the trend changes, so too will my bias.