Western Digital Corp: WDC Stock Chart Suggests a Retest of the 52-Week Lows

Western Digital CorpWDC stock: Pattern Failure

Western Digital Corp (NASDAQ:WDC) stock represents a play on the data storage device sector. The economy might not be registering any inflation, but data storage sure is. 16 GB is not what it used to be, as my 16-GB smartphone became obsolete pretty quickly, and managing my data became quite an ordeal. I quickly found myself paying to store data in the cloud and backing up data to my computer to free up space on a regular basis.

I know there is a future for data storage as I am sure I am not the only person who is facing such an inconvenience. Does this premise hold true for WDC stock, and will they benefit from this?

I can’t say for certain where Western Digital stock will trade, but I am a firm believer in technical analysis, so perhaps the charts can help shed some light on the subject.

The following chart illustrates long-term support for Western Digital stock.

Western Digital Corp NASDAQ Chart

Chart courtesy of StockCharts.com

The horizontal line on the chart above is marked as support. Prior to breaking above this level, $40.00 served as a major level of resistance. It took multiple attempts over many years to finally break above this level. There have been brief periods during which this level was penetrated, but it has held extremely well on a monthly basis.

I expect this level of support to hold, but the following chart illustrates that this level may be put to the test in the near future.

Western Digital Corp NASDAQ INDX

Chart courtesy of StockCharts.com

WDC stock had completed a head-and-shoulders bottom but that pattern was quickly aborted. Failed patterns are significant and should not be ignored. If I used this pattern to enter into a prospective position, I would be wise to exit when the price traded back below the neckline (highlighted in blue). In my systematic trading system, I try to keep my losses tight and let my winners run. This allows many small losses to be undone by a few large gains.

Not everything on the chart above is bearish. The good news is that the moving averages are converging and will be producing a golden cross in the coming days. A golden cross is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. Traders use this signal to confirm that a bull market is on the horizon. It is always wise to trade in the direction of this signal. A trader’s position should either be long or neutral in the face of such a signal.

Even though the converging moving averages are bullish, there is still very much to be bearish about. I would feel better about holding a bullish bias if shares were able to trade above the 200-day moving average, and above the horizontal level of resistance above $50.00.

The following short-term chart, using a one-hour price scale, illustrates a possible setup pattern.

Western Digital Corp NASDAQ Index

Chart courtesy of StockCharts.com

The pattern in question is a bearish rising wedge. It is a consolidation pattern and, on average, is a continuation pattern. A close below $46.00 would indicate that lower prices were on the horizon, and a possible test of support at $40.00. A close above $48.00 would negate the bearish price pattern and indicate higher prices that could lead to a retest of the neckline and a possible breakout.

The Bottom Line on WDC Stock

WDC stock was setting up a bullish trend reversal but that pattern failed. In order for my bias to switch to bullish, Western Digital stock would need to close above $50.00. That would coincide with a golden cross and would reaffirm the bias. Until that happens, I am neutral on the position, as strong support sits at $40.00 on a monthly basis and that price level could be tested in the coming weeks.

For those looking for bullish news regarding Western Digital stock, unfortunately I have very little to go on, as my outlook is neutral. WDC stock is not the only tech stock we highlight though and, fortunately, our top tech editor just released a free report outlining a breakthrough product in the tech space. Click HERE to check out the report: “This Device Will Be Bigger than the ‘iPhone’.”