AVAV Stock Is All Set to Make a Move Toward Much Higher Stock Prices

aerovironment stock
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AVAV Stock: Bullish on a Number of Timeframes

For the first time in weeks, the volatility index has finally been able to close below 20, which is great news, because anything above 20 is worrisome. Closing below 20 is suggesting that volatility is now likely to subside and that the feverish pitch of emotions that was responsible for causing the markets to swing in wild directions is coming to an abrupt end.

A move toward higher index values is very likely to follow.

I have been saying for weeks that I was expecting the volatility to subside. Now that it is actually occurring, I am relieved and quite enthused because earnings season is upon us, which always acts as a great catalyst to send stocks moving.

While the markets were correcting, I kept my eyes open, looking for compelling stocks that were setting up to make a move toward higher prices. That is how I crossed paths with AeroVironment, Inc. (NASDAQ:AVAV) stock.

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AeroVironment stock has generated a number of bullish signals and is on the verge of creating new ones, which all suggest that AVAV stock is now likely to appreciate.

The initial indication that caught my eye, which suggested that this stock was likely to appreciate, is highlighted on the following AeroVironment stock chart.

Chart courtesy of StockCharts.com

This AVAV stock chart highlights a bearish trend containing a sequence of lower highs and lower lows, which is the quintessential characteristic that defines all bearish trends.

The downtrend line highlighted on the stock chart was created by connecting the sequence of lower highs. This downtrend line represented a significant level of price resistance and, since December 2017, this downtrend line thwarted all attempts to move beyond it. As long as the AVAV stock price was contained below this downtrend line, a bearish trend persisted.

This all changed on April 11, 2018, when AVAV stock gapped above the downtrend line, negating all the bearish implications suggested by it. Price gaps such as this one are very significant and shouldn’t be dismissed. I labeled the price gap on AeroVironment stock chart as a breakaway gap because these types of gaps rarely get filled and almost always suggest that a new bullish trend has begun.

What makes this price action really exciting is that a very influential momentum indicator is on the verge of generating a bullish signal that will reinforce the notion that higher AVAV stock prices are on the horizon.

This momentum indicator is highlighted on the following AeroVironment stock chart.

Chart courtesy of StockCharts.com

This stock chart highlights a very influential momentum indicator known as the percentage price oscillator (PPO).

PPO uses the crossing of a signal line in order to determine 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.

Momentum is a very powerful force to be reckoned with, and it is why a sustained move in either direction cannot occur unless the applicable momentum is supporting it. The PPO signals highlighted on the AVAV stock chart are a testament to this notion.

The bullish PPO signal that was generated in February 2017 correctly implied that AVAV stock was likely to appreciate. Later, the bearish PPO signal in October 2017 correctly implied that AVAV stock was likely to correct.

The signal lines responsible for creating a PPO signal are currently converging, and a bullish signal could be generated in the weeks ahead. This would once again imply that AeroVironment stock is geared toward higher stock prices.

The factor that makes these pending indications that much more compelling is that recent price action has been occurring on top of a very important and significant level of price support.

This level of price support is highlighted on the following AeroVironment stock chart.

Chart courtesy of StockCharts.com

This stock chart has been annotated to include a trend line labeled as a very significant level of price support.

Prior to being a level of price support, this price point that resided at $41.50 acted as a very significant level of price resistance.

This level of price resistance contained AVAV stock from advancing for almost nine years, until one fateful day in August 2017, when AVAV stock was finally able to break above resistance. AeroVironment stock has been trading above that level ever since.

Breaking above a long-standing high is a very bullish indication because it creates an environment where anyone who is long on the stock is sitting with an investment in profit territory, while anyone who is short on the stock is sitting with an investment in loss territory.

This creates pressure for the shorts to cover, while the long investors are very comfortable holding their positions. Throw in the notion that breaking above a long-standing high has a high tendency to attract momentum investors, and a perfect environment is created where demand for available shares outstrips the supply of available shares and incredible runs toward higher prices develop as a result.

Since breaking above resistance, the stock price has returned to test the previous level of resistance. This type of price action is called a backtest, and it confirms that the original break above resistance was legitimate, while simultaneously establishing this price point as a new significant level of price support.

A successful backtest acts like a springboard and, now that the PPO indicator is converging and a bullish signal is possible, AeroVironment stock can accelerate to the upside.

Analyst Take

I am bullish on AeroVironment stock because a number of bullish signals on a number of time frames are suggesting that AVAV stock is likely to appreciate.