CDNS Stock Is Approaching an Extremely Influential Level of Resistance

CDNS Stock
Credit:iStock.com/Aajan

CDNS Stock: A Potential Ceiling is Approaching

I have seldom come across investments like Cadence Design Systems Inc (NASDAQ: CDNS) that have such a distinct and compelling stock chart. Since the conclusion of the 2008/2009 financial crisis, CDNS stock has done nothing but stage a bullish advance. Its resilience is quite remarkable, and its ability to create new highs in the face of turbulent markets only reinforces the inherent strength that is driving Cadence stock.

I am focusing on CDNS stock because it is approaching a very influential and significant level of price resistance. What happens when it reaches this price point will dictate whether the trend toward higher stock prices is set to continue, or whether a correction will ensue.

These beliefs are strictly centered around the Cadence stock chart. I have been using stock charts to generate views on investments for roughly two decades. This method of investment analysis is known as technical analysis, and it is predicated on the notion that historical data can be used to discern a trend, which is then used to forecast what the future may bring.

The following stock chart illustrates the impeccable bullish trend that has supported the bullish advance in Cadence stock.

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CDNS stock chart

Chart courtesy of StockCharts.com

This CDNS stock chart contains the quintessential characteristic that defines a bull market, which is a series of higher highs and higher lows that create a stair-step pattern that moves a stock price from the lower left to the upper right.

This bullish trend began in October 2008, at a panic-induced low of $2.42. Systematically and methodically, a consistent trend propelled this stock price to where it currently stands at $37.86. This represents a mind-boggling 1464.46% return over a nine-year period.

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This bullish trend can be identified by using a simple uptrend line, which is created by simply connecting the series of higher lows on the stock chart. As long as the stock price remains above this trend line, I can only assume that a bull market in CDNS stock is still in development. In the last few years, the stock price has accelerated away from this trend line, which means that a fairly large correction can occur, and it will still be in the context of a bull market.

As I mentioned earlier, there is a significant level of overhead resistance that is approaching, and what occurs when this level is tested will dictate whether further gains (or corrections) are in store for CDNS stock.

The following stock chart illustrates this influential and significant level of price resistance.

cadence price chart

Chart courtesy of StockCharts.com

The CDNS stock chart illustrates a level of horizontal resistance that resides at the $39.00 price point. This level marks the previous all-time high that was set in 1998 while the dotcom bubble was in development.

This level of resistance is fast approaching, and it is all that stands in the way of higher Cadence stock prices.

Levels of resistance that mark previous all-time highs are very significant and influential. Usually a stock fails to break above this price point on its first attempt. So, when CDNS shares test this price point, I am expecting some sort of reaction.

This level of resistance is so significant that surpassing it would open the door to much higher stock prices while failing to do so could spark a significant correction. That correction could possibly put the trend line that defined the bullish trend to a test.

Above this level of resistance, there is absolutely no overhead resistance to contain the price from advancing. The dynamic that makes a break above this level that much more extraordinary is that, once a longstanding all-time high is overtaken, every bullish investor is holding a profitable position, while every bearish investor is holding an unprofitable position.

New all-time highs create a vacuum in time and space where bearish investors need to cover their positions while bullish investors are less inclined to sell because their positions are performing well. Throw in some momentum investors who like to chase performance, and the perfect environment is created for a very large run-up on the Cadence stock price.

Analyst Take:

The incredible bullish run that Cadence stock has experienced since the conclusion of the financial crisis is approaching a very significant and influential level of price resistance. When CDNS stock tests this level of resistance, whatever happens next will determine if further gains are on the horizon, or if a correction is set to ensue.