Multitude of Indications Are Supporting Notion of Higher BZUN Stock Prices
First it was rising interest rates, now it’s a pending trade war. If it’s not one thing, it’s another. A market that used to shrug off bad news no longer does and, as a result, violent swings have become the norm. This is great news for traders, as opportunities are created, but it also creates a lot of angst among long-term investors.
In times of angst, the markets are characterized with volatility as leadership is changing hands. That why I always suggest that, in volatile markets like these ones, the best course of action is to be invested in stocks that are geared for higher prices, and to avoid the stocks that are correcting.
I am focusing on Baozun Inc (ADR) (NASDAQ:BZUN) stock because I have reason to believe that this stock is currently geared for higher prices. The reason I believe that Baozun stock is geared for higher prices is that it has just completed a technical price pattern suggesting that higher BZUN stock prices are now in development.
The following chart illustrates the technical price pattern that was just completed.
Chart courtesy of StockCharts.com
This BZUN stock chart illustrates a technical price pattern known as a cup and handle.
Cup-and-handle price patterns are created because a significant level of price resistance prevents the stock price from advancing beyond it.
On the Bauzun stock chart, this significant level of price resistance resided at $40.25. The inability to move beyond this price resulted in the creation of two distinct troughs, with the first trough being much larger than the second. These troughs are what characterize and define a cup-and-handle price pattern.
On March 6, BZUN stock broke above resistance, completing the cup-and-handle pattern. The breakout was marvelous because it gapped right above resistance and Baozun stock proceeded to surge higher by 31.1% that day, leaving absolutely no doubt that the pattern was just completed, which now suggests that higher stock prices are on the horizon.
If I take a step back and look at the bigger picture, the completed cup-and-handle price pattern is an integral part of Baozun stock’s bullish trend. This bullish trend is highlighted on the following chart.
Chart courtesy of StockCharts.com
This stock chart illustrates a bullish trend that has been constructive in nature and which has been in development since May 2016. Constructive price action is made of two distinct waves: a consolidation wave and an impulse wave.
The impulse waves are highlighted in green, and they outline the stage in a bullish trend when a stock price makes a sustained move toward higher prices.
The consolidation waves are highlighted in purple and outline the stage in a bullish trend when a stock price corrects and refrains from advancing. The corrective price action is necessary to unwind any overbought conditions that were created in order to create the necessary environment so that an impulse wave can follow.
These waves work together in an alternating fashion to create and sustain a bullish trend.
The completed cup-and-handle price pattern is a consolidation wave within this wave structure, and its completion suggests that a new impulse wave is now in development.
The sequence of impulse waves and consolidation waves have been in lockstep with the moving average convergence/divergence (MACD) indicator.
MACD is an influential momentum indicator that uses the crossing of signal lines in order to distinguish whether bullish or bearish momentum is influencing the price action in a stock. This indicator is influential because, in order to sustain a move in either direction, the applicable momentum is required.
Each impulse wave has coincided with a bullish MACD signal, and higher Baozun stock prices have prevailed. While every consolidation wave has coincided with a bearish MACD signal, the BZUN stock price has refrained from advancing.
The completed consolidation wave was accompanied by a bullish MACD cross, and these two coinciding indications suggest that an impulse wave is now in development and that higher BZUN stock prices are now expected.
I am bullish on Baozun stock because there a number of indications on the company’s stock chart suggesting that higher stock prices are on the horizon.
My bullish view on BZUN stock was generated using technical analysis and, as a result, I will maintain my bullish view until there are indications suggesting that another view is warranted.