TWOU Stock: Approaching Lift Off
2U Inc (NASDAQ:TWOU) stock is setting up to soar, and it contains such constructive price action that I have dubbed it a “Trader’s Paradise.” The requirements to join this exclusive club are based on an investment’s ability to adhere to rules set out by technical analysis.
Technical analysis is the methodology I use to analyze potential investments, and is the basis of my trading strategies. This style of investment analysis uses past volume and price data to discern trends and forecast future prices. I have close to two decades of experience using this methodology, and I have had quite some success doing so.
The TWOU stock chart is a prime example of an investment that adheres to technical rules and patterns. The company has only three years of public trading under its belt, and its trading characteristic can already be defined.
The following stock chart illustrates the trading characteristic of 2U stock and its adherence to technical rules.
Chart courtesy of StockCharts.com
The price action on the TWOU stock chart can be subdivided into impulse waves (highlighted in green) and consolidation waves (highlighted in purple). This type of wave structure is necessary for a trend to sustain itself.
Impulse waves advance the price in the direction of the trend, and the consolidation wave unwinds any overbought conditions that were created, and set up the next impulse wave.
The specific trading characteristic that defines 2U stock is that both consolidation waves (highlighted on the stock chart above), contain the same trading pattern. This trading pattern is what traders refer to as a cup and handle pattern. The defining characteristic of this pattern is the horizontal level of resistance and the reactions off of this level that create the cup and handle pattern.
The adherence to technical rules is illustrated by looking at the moving average convergence/divergence (MACD) indicator. The MACD indicator is a simple, yet effective, momentum indicator that is used to confirm a trend. Bullish signals have coincided with confirmed advancing impulse waves, and bearish signals have coincided with price weakness and the development of consolidation waves.
The current consolidation wave is approaching completion, and this is suggested by the converging of the MACD indicator. When TWOU stock breaks above the horizontal resistance level defined by this consolidation wave, a new impulse wave will be set to develop. This will coincide with a bullish MACD signal, and based on this notion, I expect 2U stock to soar.
The following 2U stock chart illustrates the bullish developments that are occurring on a smaller scale.
Chart courtesy of StockCharts.com
The 2U stock chart above illustrates the constructive pattern that is developing the “handle” from the consolidation pattern.
This constructive pattern is an ascending channel that is defined by two parallel trend lines that contain TWOU stock as it trends lower to complete the “handle.” An attempt to break out of the consolidation pattern will occur after 2U stock exits the ascending channel to the upside and tests resistance at $39.00.
The relative strength indicator (RSI) in the lower panel of the chart above suggests that resolution to the ascending channel will occur shortly. RSI is an oscillator that indicates overbought and oversold conditions. An RSI reading above 70 is overbought, and an RSI reading below 30 is oversold.
Applying a trend line to the RSI indicator illustrates that a bullish breakout occurred in early January. This breakout suggests that TWOU stock will exit the ascending channel in an upward direction, which would put resistance and the entire consolidation pattern in play.
A break above $39.00 and the sky is the limit, as a new impulse wave is set to develop and advance 2U stock to new all-time highs.
Bottom Line on 2U Stock
2U stock is setting up to soar. A break above the recent highs at $39.00 will confirm this view. The adherence to technical rules and patterns set out by technical analysis is the reason that TWOU stock has earned the rank of a “Trader’s Paradise.”