AKAM Stock: A Second Chance
Akamai Technologies, Inc. (NASDAQ:AKAM) is a name that I like in an exponentially growing area of cloud computing that has been able to bring names like Microsoft Corporation (NASDAQ:MSFT) back to life.
I have been watching AKAM stock for some time, looking for a potential breakout to the upside, but that event was put on the back burner in mid-July after Akamai stock reported disappointing earnings.
As an analyst, I have been using price charts as the foundation of my analysis. I have been using this style for over a decade, and I have had great success using this formula. I look for potential price pattern setups and signals as my triggers to set up appropriate investment strategies.
I believe that some good news might be in store for Akamai stock holders because the price has gone full circle, and has completely erased the drop that punished investors after the previous earnings announcement. The timing could not have been better, because Akamai is once again expected to announce its earnings.
The following Akamai stock chart illustrates the trend that has me believing that a bull market began in early 2016.
Chart courtesy of StockCharts.com
The chart above highlights a traders’ tool known as Fibonacci retracement numbers. This tool is used to identify countertrend price objectives. In theory, when a stock pulls back from a primary trend, shares will retrace approximately 50%-62% of the primary move. This zone usually offers support, as traders will be eyeing this area as one in which to enter long positions (or cover short positions).
In the context of a larger bullish trend, it is common for stocks to sell off in this type of a dramatic fashion. Some of the best-performing stocks this year—including Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft—have experienced similar sell-offs.
This kind of price action is not comfortable to sit through, and most investors would like to avoid it, but this is all within the confines of a larger bull market. These sell-offs are instrumental in alleviating overbought conditions resulting from the eagerness of retail investors.
After such a sell-off, AKAM stock can now resume its trend higher with the tailwind generated from a new crop of retail investors.
With a bullish premise in mind, the following Akamai stock chart illustrates the bullish pattern that I have been watching for some time.
Chart courtesy of StockCharts.com
There are two key bullish indicators on the AKAM stock chart above.
The first indicator is the sideways consolidation pattern that is defined by two parallel trend lines. Consolidation patterns are areas where a stock price digests the prevailing move prior to the development of the next trending move.
In July, when AKAM stock disappointed investors with a less-than-stellar earnings report, the drop in the share price did little to damage the overall picture, as the price found support at that lower trend line.
Earnings are once again expected, and Akamai stock is once again testing the resistance level of this consolidation range. I believe that earnings are the catalyst needed to send AKAM stock higher.
The second indicator is the golden cross, and this bullish indicator is generated when the 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. This indicator is used to confirm the current direction of the trend, and a golden cross indicates that the price trend is higher.
This indicator generated a bullish signal only days after the price opened lower after Akamai’s disappointing earnings announcement. I originally believed that this signal would get averted but, to my surprise, this signal has remained bullish, despite AKAM stock dropping lower.
The fact that this signal has remained bullish under these circumstances only serves to reinforce my bullish bias, and it increases the odds that the price will break out of this range in a bullish manner.
The Bottom Line on Akamai Stock
I am bullish on Akamai stock, and I believe that the consolidation pattern will resolve itself in a bullish manner. My bias on AKAM stock is based on the information I was able to extract from the price chart. If the signals I generate change, so too will my bias.