BOX Stock Is Coiling Like a Spring, Getting Ready to Jump

BOX STOCK
Credit: iStock.com/traviswolfe

BOX Stock: Anticipating Higher Stock Prices

Box Inc (NYSE:BOX) reported earnings after the close of trading on August 30, 2017. The headline numbers were good because Box beat on the both the top and bottom lines, but this wasn’t the whole story because there was a metric that disappointed investors. The disappointment stems from the fact that this quarter’s free cash flow came in at a negative number versus the two previous quarters of positive free cash flow. This news upset investors, and in response, they sent BOX stock lower by seven percent in after-hours trading.

The next day, on August 31, cooler heads prevailed because Box stock only closed lower by 0.1% as investors swooped in early to take advantage of the lower prices that were available early in the day.

The reason why I am focusing on Box stock is that there is a technical price pattern that is in development, suggesting that a powerful move is in the making. The price action following earnings increases the odds that this pattern will resolve itself in a bullish manner, suggesting that a powerful move towards higher stock prices is on the horizon.

This technical price pattern is highlighted on the following Box price chart.

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BOX Stock Chart Price

Chart courtesy of StockCharts.com

Ever since the stock price peaked in June of this year, the trading action has been confined to a trading range. Resistance is bound by $20.00 and support is bound by $17.75.

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These levels of support and resistance have been tested numerous times, and the stock price remains confined by them. The trading action has created a very distinct and powerful price pattern that is acting like a coiled spring. Every time BOX shares bounce off a level of support or resistance, momentum is stored within the pattern. This momentum will continue to build until the stock price exits the trading range, releasing this momentum.

The longer the share price stays within this trading range, the larger the reaction will be once it is resolved. A close above resistance or below support will dictate the direction that BOX shares are heading in next.

At this moment, I have the inclination to believe that this pattern will resolve itself in a bullish manner because the overall backdrop supports a break above resistance.

The following Box stock chart illustrates the metrics that are creating the bullish backdrop.

box stock chart

Chart courtesy of StockCharts.com

The two key metrics creating the bullish backdrop in Box stock are an uptrend line and the 200-day moving average.

The uptrend line, which is created by connecting the troughs on the price chart, defines the bullish trend that began in June 2016 when the share price found its footing. This bullish trend contains the quintessential characteristic that defines all bullish trends, which is a series of higher highs and higher lows. As long as this trend continues, I can only assume that higher stock prices will prevail.

In response to the earnings announcement, Box shares hit a low of $18.75, which precisely coincided with the uptrend line, and like previous tests of this uptrend line, buyers were eager to step in and support it.

The 200-day moving average, which is created by averaging the stock’s closing price over the last 200 days, acts as dividing line that separates unhealthy bearish investments from healthy bullish ones. Distinguishing between these two polar opposites is a simple task because a stock trading above the 200-day moving average is bullish, while one trading below it is bearish.

In August 2016, BOX shares crossed above the 200-day moving average, and they have not looked back since.

These two metrics continue to suggest that the predominant trend in BOX stock is bullish, and therefore, it favors a bullish resolution of the trading range.

Analyst Take: 

There is a technical price pattern in development on the Box price chart that is suggesting that a powerful price move is in the making. The fact that BOX stock was able to shake off the weakness following its earnings announcement serves to suggest that the odds are favoring a powerful move to the upside.