AMBA Stock Is in Bullish Alignment
I am really excited about Ambarella Inc (NASDAQ:AMBA) stock! My excitement stems from the price action that has occurred on the Ambarella stock chart. This price action, and a number of technical indicators, are now suggesting that AMBA stock is all set to make an advance.
My bullish inclination towards this name is not new, and I have expressed my opinion on this investment periodically. For example, on January 20, 2017, I published a report titled “Ambarella Inc: AMBA Stock Can Regain Its Footing Here.”
My report outlined that, even though Ambarella stock was experiencing weakness in its share price, it had approached a level of price support that it needed to remain above in order to even ponder the prospects of a potential bull market.
On February 11, I published another report, titled “The Trend in AMBA Stock Is Bullish Once Again,” in which I outlined key bullish developments which were suggesting that AMBA shares were setting up to make a move toward higher prices.
These developments have now come to fruition, and I have all the indications I need to firmly believe that Ambarella shares are set to appreciate. I will now illustrate how my bullish view was generated.
The following Ambarella stock chart shows the tool that was utilized to suggest that a potential bottom was being formed earlier this year.
Chart courtesy of StockCharts.com
In January of this year, I was using the Fibonacci retracement numbers to suggest that, if there was any chance for a bullish move to develop in AMBA shares, the stock price needed to find its footing around $49.00.
The Fibonacci retracement numbers are a tool used by investment professionals to identify counter-trend price objectives. The theory behind these retracement numbers is that an investment will retrace approximately 50%–62% of its primary move before the predominant trend will reassert itself.
This 50%–62% retracement level has gained such popularity that, in some trading circles, it is referred to as trading into “the box.” This tool is why I outlined that the price of AMBA shares needed to regain its footing where it did, in order to even suggest that the predominant trend is still bullish.
After finding its footing in January, Ambarella shares returned to test this level again in April. The second test of the 62% retracement at $49.40 proved to be a bullish catalyst, because the share price has appreciated significantly since then.
The following Ambarella price chart illustrates further indications that are supporting and reinvigorating this bullish advance.
Chart courtesy of StockCharts.com
The price chart above contains two indications that are currently supporting this bullish advance.
The first bullish indication comes from the constructive price action that defined the predominant bullish advance that began in February 2016. Constructive price action contains two predominant waves in its structure.
The first wave, which is highlighted in green above, is an impulse wave, and its primary purpose is the progression of the price. In a bull market, this progression in the price comes in the form of an advance. The second wave, which is highlighted in purple, is a consolidation wave, and its primary purpose is to set up the appropriate conditions where a new impulse wave can develop.
A new impulse wave is set to develop when the stock price exits the consolidation wave. In April of this year, AMBA stock exited the consolidation wave in an upward direction, suggesting that an advancing impulse wave is set to develop.
Consolidation waves, such as this one, have a tendency to act like a midpoint. Therefore, this wave can be used to protect a potential price objective of the developing impulse wave. The theory behind this states that the developing impulse wave should mirror the initial impulse wave that preceded it. Applying this theory to the price structure above creates a potential price objective of $90.00.
The second bullish indication comes from the moving average convergence/divergence (MACD) indicator located in the lower panel of the stock chart above. MACD is an indicator that is used to distinguish between bullish and bearish momentum. This indicator also has a propensity to confirm the intermediate direction that this investment is heading in.
For instance, in February 2016, a bullish MACD cross was generated, indicating that bullish momentum was governing Ambarella shares. This indicator effectively suggested that an advance was in the works, and it followed the impulse wave that began in May 2016.
In October 2016, a bearish MACD cross was generated, indicating that bearish momentum was governing AMBA stock. This indicator effectively suggested that a decline was set to take place.
The current bullish MACD cross was generated in April 2017, and it carries bullish implications which are suggesting that an advance is now set to take place, because bullish momentum is creating an environment where the path of least resistance for the stock price is geared toward higher prices. This indicator is effectively confirming the notion that an impulse wave is now in development, and that higher prices can be expected.
Bottom Line on Ambarella
I am bullish on this company, and I believe that Ambarella stock is now set to appreciate. This bullish view is predicated on the indications that were generated using the AMBA stock chart. Until these indications suggest otherwise, I will remain bullish on the prospects of this investment.