AXAS Stock Is Testing a Previous Level of Price Resistance
The first quarter of the year was characterized by elevated levels of volatility. This environment resulted in wild market swings, which ultimately led to lower index values.
The entire time that the markets were under duress, there was one sector in particular that showed signs of relative strength and stood out among its peers.
The sector I am referring to is energy. With the multi-year highs that oil has just come off of, it is easy to understand why.
There is a new dynamic in play at the moment, as the Russell 2000 has gone on to make a new all-time high. The Russell 2000 is the small-cap index. If this index is making new highs, it is suggesting that the markets are still poised for gains.
These factors are why I have decided to focus on Abraxas Petroleum Corp. (NASDAQ:AXAS).
I like Abraxas stock because it is an energy play, and from an operations standpoint they use the latest in technology in order to explore, develop, and produce crude oil and natural gas. Their adoption of technology is why I beleive this company is poised to prosper for many for years to come.
I also like this AXAS stock because it is also a small-cap stock.
If energy and small cap stocks are going to outperform, there is good reason to believe that AXAS stock will appreciate as well.
Sectors aside, I happen to believe that Abraxas Petroleum stock is likely to appreciate because a number of technical indications are currently supporting such an outcome.
The first indication that grabbed my attention was a completed price pattern that is highlighted on the following Abraxas Petroleum stock chart.
Chart courtesy of StockCharts.com
The technical price pattern highlighted on the above AXAS stock chart is a cup and handle.
Cup and handle patterns such as this one are created because a significant level of price resistance prevented the stock price from moving beyond it.
This inability to advance beyond a significant price point creates a pattern of two distinct troughs, in which the first trough is much larger than the second. These troughs create the picture that characterizes the cup and handle pattern.
The significant level of price resistance responsible for creating the pattern was first established in January 2017.
On April 17, AXAS stock broke above this level of price resistance, completing the price pattern. This breakout is an indication that higher Abraxas Petroleum stock prices are likely to prevail.
This notion of higher prices is being reinforced by a very influential momentum indicator, known as the moving average convergence/divergence (MACD).
MACD distinguishes whether bullish or bearish momentum is influencing the price action in a stock. Bullish momentum implies that a stock is likely to appreciate while bearish momentum implies that a stock is likely to depreciate.
This is very important information, because a stock cannot sustain a move in either direction unless the applicable level of momentum is supporting it.
For example, the Abraxas Petroleum stock chart illustrates that, when the MACD indicator is in bullish alignment, AXAS stock has a tendency to appreciate in prices.
The same can be said about the MACD indicator when it is in bearish alignment, because AXAS stock has a tendency to depreciate.
The break above the significant level of price resistance coincided with a bullish MACD cross, strongly suggesting that higher stock prices are now in development.
This move toward higher prices manifested quickly, but the Abraxas stock prices have returned to test the significant price point that once stood as resistance.
This type of price action is called a backtest, and it serves to reaffirm that break above resistance was legitimate, while simultaneously establishing it as a new level of price support.
Backtests act like springboards. Once this backtest is complete, higher prices should follow. The MACD indicator remains in bullish alignment, supporting such an outcome.
In order to quantify the potential upside of this pattern, the price action that preceded it is needed.
The combination of this price pattern and the price action that preceded it are highlighted following Abraxas Petroleum stock chart.
Chart courtesy of StockCharts.com
The combination of the completed cup and handle pattern and the price action that preceded it has created a wave structure that is responsible for sustaining a bullish trend.
This wave structure consists of impulse waves and consolidation waves.
The waves highlighted in green are impulse waves, and they define the stage in a bullish trend when a stock makes a sustained move toward higher prices.
The waves highlighted in purple are consolidation waves, and they define the stage in a bullish trend when a stock corrects and refrains from advancing.
These waves work together, feeding off each other, creating the necessary conditions for a bullish trend to flourish.
The cup and handle price pattern doubles as a consolidation wave. The completion of this pattern implies that a new advancing impulse wave is in development.
Quantifying the potential upside of this wave structure is done under the assumption that the impulse wave currently in development should meet or exceed the magnitude of the impulse wave that preceded it.
Applying this theory to AXAS stock suggests that $3.75 is attainable, and I wouldn’t be surprised if we see an attempt at much higher prices.
The completion of a technical price pattern has coincided with a number of technical developments which are strongly suggesting that Abraxas Petroleum stock is likely to appreciate.
This notion of higher prices will remain intact as long as AXAS stock continues to trade above the significant level of price resistance that initiated this bullish view.