Box Stock: An Attempted Trend Reversal Will Be Initiated
The new year started out with the major market indices staging quite an impressive advance. This is nice change of pace, considering the disappointing fashion in which 2018 ended.
What makes the current advance in the stock market that much more impressive is that it is occurring while there are a number of striking issues that need to be dealt with. For example, We are still in the midst of a trade war and the U.S. government is shut down.
I have a hard time believing that the markets will be able to sustain a move toward higher index values unless these issues are resolved. I suggest that the current move is just a much-needed relief rally.
Relief rallies tend to be very powerful, which is why it is important to take advantage of the strength in the stock market while it is available.
I currently have my eyes on Box Inc (NYSE:BOX) because I believe it is all set to make a move. My beliefs are technical in nature, which means they are based on the price action and the signals that have been generated on the BOX stock chart.
The price action since the middle of November has been quite constructive, so it can be used to determine when the next move in BOX stock is likely to begin.
The constructive price action I am referring to is captured on the stock chart below:
Chart courtesy of StockCharts.com
The chart above illustrates that a level of price resistance currently resides at $19.66. This level of was defined by connecting the peaks in the price action that occurred since early November.
Breaking above this level of resistance would indicate that BOX stock is likely to sustain further gains. That’s because it would be completing a double bottom pattern, a trend reversal pattern that contains consecutive lows separated by a peak in between.
These consecutive lows were established on November 20, 2018, when the share price hit a low of $15.71—and on December 24, when the share price hit a new low of $15.64.
The peak that separated these two lows was established on December 12, when the share price hit a high of $19.66. The stock price needs to sustain a close above this peak in order to complete the pattern, which would ultimately suggest that the trend has reversed.
Once this event unfolds, higher stock prices will likely follow.
The initial price objective of this completed price pattern is $23.50. That objective was formulated by taking the depth of the pattern and adding it to the level of price resistance that was responsible for creating it. Reaching the price objective would equate to a return of 19.5%, which—while not incredible—is respectable.
More importantly, this price objective coincides with the 200-day moving average.
The 200-day moving average is a popular metric used to determine whether a stock is trading in a bullish state and likely to appreciate, or a bearish one and likely to depreciate.
When BOX stock started trending toward higher prices in late 2016, it was trading above the 200-day moving average. Throughout the development of this bullish trend, the average acted as a level of price support, so BOX stock always maintained its bullish stature.
On October 1, 2018, the share price lost its footing above the 200-day moving average and there was a precipitous drop. Over the course of eight weeks, the stock ended up shedding 30.2% of its value.
Box Inc needs to regain its footing above this level in order to restore its bullish stature. Failing to do so would indicate that the 200-day moving average has become a level of resistance, solidifying the stock’s bearish stature. A bearish stature would suggest that lower stock prices are on the horizon.
BOX stock is setting up to make a move, with a close above $19.66 being an indication that the move is a higher one.
This would also put the 200-day moving average to a test. BOX stock needs to regain its footing above this moving average in order to reclaim its bullish stature. Failing to do so carries bearish implications.