AMBA Stock: Time for a Stand
It was quite a wild ride for Ambarella Inc (NASDAQ:AMBA) stock in 2016. The year stared off poorly, as a market sell-off gripped Ambarella stock and sent it spiraling lower by 40%. It took AMBA stock five months to shake off this slide before it was finally able to turn positive for the year.
In October, Ambarella stock was looking bright, as it reversed the disastrous start to 2016 and was now positing a positive return of 34% for the year. Unfortunately, these gains did not last very long, as selling pressure quickly developed and AMBA stock finished the year down 2.8%. The concerning factor was that this late-year sell-off occurred as AMBA stock’s peers and the general equity markets finished the year on a strong note.
Ambarella stock is now entering a band of support. If there is any chance this company can regain its footing and become bullish once again, this is where AMBA stock must take a stand.
The following Ambarella stock chart illustrates where AMBA stock can once again find its footing.
Chart courtesy of StockCharts.com
Fibonacci retracement numbers (highlighted in green) are a sequence of mathematical numbers that traders use to identify counter-trend price objectives. The theory behind these numbers is that when a stock completes an advance, it will pull back from the primary trend and find support when the price retraces approximately 50%–62% of the advance.
This band of support is what traders refer to as “The Box,” and they use this level in the hopes of acquiring a strategic long position or to unwind a strategic short position. Ambarella stock has now entered “The Box,” and if a bullish trend is going to develop, this is where AMBA stock is going to find support.
The indicator in the lower panel labeled “MACD” has a great track record of confirming both bullish and bearish trends with great precision. The moving average convergence/divergence (MACD) indicator is a simple, yet effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish trending markets.
In February, a bullish MACD cross effectively confirmed that a bottom was put in AMBA stock. And in October, a bearish MACD cross confirmed that a top had been formed.
If Ambarella stock is going to regain its footing at this juncture and attempt a bullish run, I would wait for the MACD signal to confirm that a bullish trend has begun.
The following AMBA stock chart illustrates the constructive price action that suggests a bottom could be formed.
Chart courtesy of StockCharts.com
Healthy price action consists of impulse waves that advance price and consolidation waves that unwind any overbought condition that resulted from the advance. Consolidation waves also serve to set up the next impulse wave.
Healthy trends are littered with such price action because they bring order to a trend. And with order, a trend can be sustained and continue for quite some time.
In order for a bullish impulse wave to develop, Ambarella stock would need to exit the consolidation wave in an bullish upward direction. Such a feat would have tremendous bullish implications because the theory suggests that the size of this new impulse wave would match the prevailing one. This suggests that if AMBA stock does exit the consolidation wave in an upward direction, this would set the wheels in motion for Ambarella stock to surpass the high that was created in October.
Bottom Line on AMBA Stock
Ambarella stock has been performing poorly as of late and is exhibiting relative weakness as it is failing to follow suit with its peers and the general equity market. This market weakness can potentially become bullishly constructive if AMBA stock can make a stand, regain its footing, and stage an advance.