CLS Stock: A Sustainable Trend
Names like Celestica Inc (NYSE:CLS) bring back vivid memories of the dotcom bubble. Those were interesting times, to say the least. The current market environment, although nothing as close to those extremes, is starting to remind me of the days back in 1998, when I was first pulled in by the glitz and glamour of the investment world.
To give an example of the mania that gripped the markets in that era, Celestica stock hit a low of $5.19 in October 1998 and, at the feverish peak in September 2000, shares were trading at $87.00. To put that into perspective, it represented a 1372.08% return and, to compound these stunning results, there were hundreds, maybe thousands, of tech stocks that experienced similar returns.
My fascination with CLS stock has little to do with nostalgia. I am focusing on this ticker because it contains certain compelling characteristics that I seek when I search for a potential investment. This compelling characteristic is found within the Celestica stock chart, and it is indicating that the stock contains bullish tendencies, which serve to suggest that higher stock prices are on the horizon.
If you’re not familiar with any of my previous articles, I use technical analysis to generate my investment views. This style of investment 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, my analysis begins and ends using a company’s price chart. The only metrics that change are the periods I focus on and indicators that I employ.
The following Celestica stock chart illustrates the technical price pattern which first suggested that a bullish view was warranted.
Chart courtesy of StockCharts.com
In 2016, CLS stock was busy putting in a technical pattern known as a “double bottom.”
A double bottom is a technical reversal pattern that appears at the conclusion of a bearish trend. This pattern is marked by two consecutive bottoms, separated by a peak in between. The pattern is completed when the share price closes above the peak that separates the two bottoms. the completion of this pattern indicates that the bearish trend has concluded, and that a bullish trend has commenced.
The “double bottom” pattern that is highlighted in the chart above illustrates the symmetry between the two adjacent bottoms. I have found that the technical price patterns that contain symmetry tend to perform better and, as a result, I tend to focus on investments that contain symmetrical price patterns.
In October 2016, Celestica shares closed above the peak that separated the two bottoms, and this indicated that a new bull market was born. To date, this pattern has marked the exact bottom, and the CLS stock price has been on steady climb ever since.
The following Celestica stock chart illustrates the bullish price action that followed the confirmation of the reversal pattern.
Chart courtesy of StockCharts.com
The price action off the lows set in early July 2016 have been nothing short of spectacular. This bullish action has been extremely constructive.
Constructive price action consists of a two-wave structure: an impulse wave and a consolidation wave. The impulse waves, which are highlighted in green on the above chart, serve to advance the price, and consolidation waves, which are highlighted in purple, serve to alleviate any overbought conditions and set up the next impulse wave. This alternative wave structure is the building block of a sustainable trend, and is a quality I seek in a potential investment.
Within the first consolidation wave, I have highlighted a technical indicator known as a golden cross. A golden cross is a bullish signal that is generated when the faster 50-day moving average (highlighted in blue on the above chart) crosses above the slower 200-day moving average (highlighted in red). This signal is popular among traders because it suggests that a bull market is in development.
This golden cross, in particular, continues to suggest that higher prices are likely, because the 50-day moving average is diverging away from the 200-day moving average. The growing disparity between these moving averages indicates that the trend towards higher price is accelerating.
The breakout that is highlighted on the chart above indicates that CLS stock has just completed a consolidation wave. The completion of this wave is suggesting that a new impulse wave is now set to develop and that, therefore, higher prices can now be expected.
Bottom Line on Celestica
I am bullish on Celestica stock because a trend reversal pattern was completed in 2016, suggesting that the trend toward lower prices had concluded, and that a new bull market had begun. This pattern was then followed by bullish indicators and a constructive price action that continue to reinforce the notion that higher CLS stock prices are likely to follow.
My bullish view on this stock was generated by using technical indicators. I will remain bullish on Celestica shares until there are indicators suggesting that another view is warranted.