BZUN Stock: A Simple Uptrend Line Says It All
The differences between the market environment that characterized all of 2017 and the current market environment in 2018 are quite contrasting.
2017 was characterized by a low volatility environment that was dominated by a consistent barrage of new highs. 2018, on the other hand, has been a high-volatility environment. I cannot recall the last time the S&P 500 or the Dow Jones Industrial Average forged a new high.
This tale of two markets really comes down to the price action, which determines whether a market is trending or correcting. 2017 was a trending year for the markets, while 2018, thus far, has been a corrective one. The reason why I am categorizing the price action using these two distinct characteristics is because stocks behave in the exact same manner.
For instance, I am focusing on Baozun Inc (ADR) (NASDAQ:BZUN) stock because it has been trending toward higher BZUN stock prices for a number of years now.
The bullish trend depicted by this price action has been captured on the following Baozun stock chart.
Chart courtesy of StockCharts.com
The BZUN stock chart captures a bullish trend that began its development in May 2016, when the price action began making a series of higher highs and higher lows.
This price action is the quintessential characteristic that defines a bullish trend, and it has been responsible for taking BZUN stock from a low of $4.83 in May 2016 to where it currently resides at $55.87. If you’re wondering, this represents a 1,056.73% return in three years.
The uptrend line annotated on the BZUN stock chart was created by connecting the series of lower highs. This uptrend line not only captures the bullish trend, but also pinpoints where price support resides.
The number of times Baozun stock has bounced off the uptrend line illustrates that it is indeed a significant level of price support. It is why I can conclude that as long as BZUN stock is trading above this uptrend line, the bullish trend that began in May 2016 is still in development and higher Baozun stock prices are likely to prevail.
This notion of a sustained trend toward higher prices is being reinforced by a wave structure occurring above the uptrend line and an influential momentum indicator supporting it. These metrics are highlighted on the following Baozun stock chart.
Chart courtesy of StockCharts.com
This BZUN stock chart captures the wave structure that has been in development above the uptrend line and the influential momentum indicator that has been supporting it.
The wave structure consists of two distinct waves: a consolidation wave and an impulse wave.
The impulse waves, which are highlighted in green, define the stage in a bullish trend when a stock price makes a sustained move toward higher prices. The consolidation waves, which are highlighted in purple, define the stage in a bullish trend when a stock corrects and moves against the predominant trend.
Corrective price action is necessary in every bullish trend because it serves to unwind any overbought conditions that were created during the impulse wave that preceded it. This process creates the necessary conditions so a new impulse wave can follow.
Bullish trends are created by this alternating wave structure. The waves within it have been supported by the moving average convergence/divergence (MACD) indicator.
MACD is an influential momentum indicator that uses the crossing of signal lines to determine whether bullish or bearish momentum is influencing the price action in a stock.
Bullish momentum implies that the path of least resistance is geared toward higher prices. Bearish momentum implies that the path of least resistance is geared toward lower prices. This indicator is influential because, in order to sustain a move in either direction, the applicable level of momentum is required.
This is why each impulse wave has coincided with a bullish MACD signal and each consolidation wave has coincided with a bearish MACD signal.
The MACD indicator is currently in bullish alignment, supporting the notion that a sustained move toward higher Baozun stock prices, via an impulse wave, is now in development.
I am maintaining my bullish view on Baozun stock because the technical indications continue to support the notion that higher stock prices are still in development. My bullish view on BZUN stock is contingent on it being able to maintain its posture above the uptrend line. Breaking below it would negate my bullish views.