BCOV Stock: A Second Chance
This is not my first time covering Brightcove Inc (NASDAQ:BCOV) stock, but the same compelling reason that brought me to this name in the first place has brought me back. This reason stems from a very large technical price pattern that has developed on the Brightcove stock chart. This pattern is suggesting that higher prices are now in the cards for BCOV stock
I use technical analysis as the basis for my investment decisions. This style of investment analysis is based on the notion that historical price and volume data can be used to forecast the future direction of price. I frame my focus on the stock chart in order to extract patterns and indicators that will give me foresight on the next direction price will take. I have been using this method for nearly two decades and it has served me very well.
The following Brightcove stock chart illustrates the very large technical pattern that I am referring to.
Chart courtesy of StockCharts.com
Shortly after BCOV stock went public in 2012, the shares began drifting lower with distinct negative bias. Over the last four years this negative bias created a very large descending triangle. A descending triangle is a consolidation pattern that has two converging trend lines. One trend line represents support and the other trend line represents resistance.
These patterns are especially powerful because as time progresses, the room within the pattern starts to compress. This confinement of space causes momentum to build within the pattern, which is then released when price exits the pattern. The reaction that follows is correlated with the size of the pattern that has developed. Bigger patterns have bigger reactions.
In June 2016, the pattern was completed when price exited the pattern in an upward direction, breaking above resistance. This event is highlighted on the chart above as a breakout. This breakout served to suggest that a new bullish trend had begun because the negative trend that was contained within the triangle pattern had concluded. This opened the door to higher prices, and Brightcove stock proceeded to run to a high of $13.80 without even taking a breath.
When the stock finally did take a breath, a sell-off ensued and all of the gains that were made from the completed triangle were erased. All is not lost because this sell-off served to backtest the descending triangle above. This backtest that is highlighted on the chart above illustrates this price action. A backtest serves to reinforce the notion that resistance is now a new level of support, and some traders refer to it as one last kiss goodbye before the new trend reasserts itself.
The following Brightcove stock chart illustrates the developments that now suggest that higher prices are likely.
Chart courtesy of StockCharts.com
The BCOV stock chart illustrates the trading action using a weekly scale over an 18-month time frame. The chart illustrates that resistance at $7.00 was formed when price was rejected by that level in November 2015. It was not until June 2016 that price was able to push beyond this level, and by doing so, resistance was broken.
When a level of resistance is broken, it becomes a new level of support. As a result, when price returned to test this level from above, buyers came in to support this level. The fact that this level coincided with support outlined by the descending triangle only served to reinforce the notion that $7.00 is an important level of support.
The moving average convergence/divergence (MACD) indicator in the lower panel has been instrumental in confirming the predominant trend. MACD is a simple and effective trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum.
In October 2016, a bearish cross was generated, indicating that bearish momentum was propelling BCOV stock, and that the path of least resistance was geared towards lower prices. The sell-off that ensued is testament to the importance of this indicator, and is the reason why I never trade against this indicator.
A bullish cross was just generated and is indicating that bullish momentum is now propelling Brightcove stock, and as a result, that the path of least resistance is now geared towards higher prices.
The backtest, the bounce off support, and the bullish MACD cross all support the view that Brightcove is now set to appreciate.
Bottom Line on Brightcove Stock
I am returning to Brightcove stock once again to reiterate my bullish view that was first generated in June 2016. The recent price action, and the indicators that were generated on the stock chart, are now suggesting that the sell-off has concluded and BCOV stock is ready to make a move towards higher prices.