This Is WHY WDC Stock Will Continue to Appreciate

WDC StockWDC Stock Is, Without a Doubt, Bullish

Western Digital Corp (NASDAQ:WDC) stock represents a piece of price perfection. I am enamored with the WDC stock chart on many levels, but its ability to abide by the rules that are set out by technical analysis are what sets it apart.

As a proponent of this style of investment analysis, it has made covering Western Digital stock a pleasure because the indicators on the chart are concise, and the patterns are pristine.

For anyone who is not familiar with technical analysis, this form of investment analysis is based on the notion that the price trends over time and, therefore, historical price data can then be used to forecast future prices. I have been refining my craft using this method for nearly two decades, and I have experienced much success in doing so.

The following Western Digital price chart illustrates a few examples of its ability to adhere to rules set out by technical analysis.

wdc stock chart

Chart courtesy of StockCharts.com

The chart above illustrates the fact that a previous level of resistance that stood at $40.00 is now a major level of price support. Prior to being a level of support, this level thwarted many attempts for the price to move beyond it. It was not until the fateful day in January 2013 when the price was finally able to leap over this hurdle.

Once this level was broken, Western Digital stock took off in a straight line, reaching a high of $107.91 in a span of 24 months. This represents a 170% return. Once this run concluded, a vicious sell-off gripped WDC stock, and the entire run was erased in half the time it took to develop.

It was not a coincidence that the price found support at the previous level of resistance. Returning to test a previous level of price resistance from above is what traders refer to as a “backtest.” This price action serves to reaffirm that this level is indeed a new level of price support, and that the original break above the resistance level was legitimate.

The moving average convergence/divergence (MACD) indicator in the lower panel of the above chart has been instrumental in confirming the predominant trend. MACD is a simple and effective trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum.

A bearish signal indicates that bearish momentum has overwhelmed any bullish momentum and, as a result, the path of least resistance is to the downside. A bullish signal is the exact opposite of a bearish signal, suggesting that higher prices are likely.

A bearish cross was generated in early 2015, and it served to confirm that the predominant trend was to the downside. The bullish cross that occurred in late 2016, is now serving to confirm that the predominant trend is now to the upside.

The predominant upward trend is now targeting the next logical level of resistance, which sits at $107.91, the high that was set in late 2014.

A simple tool known as a trend line is also instrumental in establishing the predominant trend in the Western Digital share prices, and the use of this trend line is illustrated below.

wdc chart

Chart courtesy of StockCharts.com

The Western Digital stock chart above illustrates how a simple trend line can be used as an indicator to determine the predominant trend.

A simple trend line was used to define the bearish trend that began shortly after the price peaked at $107.91. This trend line was created by connecting the peaks on the price chart. This downtrend line contained the price as it trended lower, and, as long as the price remained below it, the predominant trend was lower.

Within this downtrend, after the $40.00 support level was tested, an uptrend slowly began to develop. This trend was not confirmed until the price was able to break above the downtrend line in October 2016. This break in the downtrend line indicated that the bearish trend had concluded, and that the price was now free to appreciate. This indicator preceded the bullish MACD cross, which then acted to reinforce the notion of a new bullish trend.

After the breakout, the uptrend line has continued to support the price as the trend toward higher prices progresses. From a trading standpoint, this trend line can be used to define risk and, as long as the price remains above it, the bullish run toward higher prices is intact.

If these indications were not enough, the price action above the uptrend line remains constructive and the bullish run is supported by bullish indicators.

wdc stock chart

Chart courtesy of StockCharts.com

The constructive price action that is illustrated above consists of impulse waves that are highlighted in green and consolidation waves that are highlighted in purple.

These waves are instrumental in sustaining a trend. An impulse wave advances the price, and a consolidation wave serves to alleviate overbought conditions,and set up the next advancing impulse wave. This alternating wave structure allows a trend to remain sustainable.

A golden cross was generated in early September 2016, and this indicator supports the notion of higher prices. A golden cross is a bullish signal that is produced when the faster 50-day moving average, highlighted in blue, crosses above the slower 200-day moving average, highlighted in red. Traders use this signal to confirm that a bull market is on the horizon, and it is not uncommon for a price to accelerate after such an indicator is generated.

Ever since the golden cross was generated, the 50-day moving average has been acting as a level of price support. The 50-day moving average coincides with the uptrend line on the previous chart, and these two levels act to reinforce support.

The WDC share price has just tested support outlined by both the 50-day moving average and the uptrend line, and this test was within the context of a consolidation wave. Completion of this wave would suggest that a new impulse wave was set to develop, and that higher Western Digital share prices are likely.

Bottom Line on Western Digital Stock

A slew of indicators continue to suggest that higher Western Digital stock prices are likely. As long as the indications on the WDC stock chart remain bullish, my views regarding this investment will remain bullish. When the indications change, so too will my view.