BBD.B Stock: Moment of Truth
There are really only two views that I can carry when it comes to the prospects of an investment: I am either bullish or bearish.
I haven’t been shy in expressing my bullish views on Bombardier Inc. (TSE:BBD.B) stock, as it has been a focus of a number of publications, and appropriately so, as Bombardier stock bottomed in 2016 at $0.72. A stellar rally followed, and BBD.B stock is now trading at $2.06, and it is approaching a key technical level that will determine if a bullish or bearish view will be warranted.
My bullish and bearish views are generated using technical analysis. This method of analysis is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. As a result, the price chart is the basis of my investment views. I have been using this method of analysis for nearly two decades, and I have become a proponent of this method based on my previous successes.
Bombardier is about to test an important level of price support, and this is the moment when it benefits to pay heed, because a successful test of this level would indicate that another bullish run is set to to ensue, which would reinforce the notion that a bullish view is still warranted.
The following Bombardier stock chart illustrates the constructive price action that warranted a bullish view.
Chart courtesy of StockCharts.com
The price action that followed the lows that were created in early February 2016 has been bullish in many ways. This bullish price action is characterized by constructive price action and supporting indicators.
Constructive price action consists of impulse waves that serve to advance the price, and consolidation waves that serve to alleviate overbought conditions and set up the next impulse wave. This alternating wave structure is the basis of a sustainable trend.
The impulse waves are highlighted on the stock chart in green and the consolidation waves are highlighted in purple.
In the process of completing the initial impulse wave, a golden cross was generated. This indicator is produced when the faster 50-day moving average crosses above the slower 200-day moving average. This indicator is used by traders to confirm that a bull market is in development and, as a result, I tend to tilt my trading strategies toward a bullish bias when this indicator is engaged.
While the consolidation wave was in development, the 200-day moving average was successfully tested, and a bearish death cross was averted.
The 200-day moving average is the dividing line between stocks trading in a bull market versus stocks trading in a bear market. A stock trading above this moving average is bullish, and one trading below it is bearish. Successfully testing this moving average from above only serves to reaffirm that bullish tailwinds continue to swirl around BBD.B stock, and that a bullish view is still warranted.
Following the successful test of the 200-day moving average, the golden cross was in danger of giving way to its counterpart, the death cross. This indicator is the exact opposite of a golden cross, and a number of bearish implications follow. In December 2016, Bombardier smartly accelerated to the upside, averting this bearish indicator. It takes a lot of buying pressure to avert a bearish indicator, and this is a testament to the inherent strength that is driving Bombardier stock higher. This acceleration in the price caused it to exit the consolidation wave in an upward direction, indicating that a new impulse wave was in development.
That impulse wave concluded in early 2017 and the price has begun to drift lower. This drift is now testing the 200-day moving average once again, as well as testing the consolidation wave from above. It is not uncommon for a price to return and revisit a previous level of resistance. This price action is referred to by traders as a backtest, and it serves to reinforce the notion that a previous level of resistance is now a level of support. In many cases, it acts like one last kiss goodbye before the predominant trend reasserts itself.
This price action is better illustrated on the BBD.B price chart below.
Chart courtesy of StockCharts.com
The backtest that is coinciding at both the 200-day moving average and the consolidation wave is also coinciding with a level of support that is illustrated on the Bombardier stock chart above.
This level of support is the result of a successful completion of a technical pattern that is suggesting that higher prices are still likely to follow. The pattern is highlighted in pink and is known as a “cup and handle” pattern.
This pattern is useful on many fronts; not only does it suggest the next direction in the price, but it also serves to provide a potential price objective. This price objective is obtained by taking the depth of the cup and extrapolating it above the horizontal level of resistance that contained the price.
This creates a price objective of $3.30, and this objective is still in play as long as BBD.B stock remains above the previous level of resistance, which is now a level of price support.
Bottom Line on Bombardier Stock
Bombardier stock is now testing a level of price support that currently coincides with three distinct metrics, which suggests that support at this level is strong. A successful test would reinforce the notion that higher BBD.B stock prices are likely and that a bullish view is still warranted.