CHKP Stock: Testing an Extremely Significant Level of Price Resistance
Earnings season is now in full effect, and the direction in which the markets trade on any given day is determined by how investors perceive the slew of earnings that day.
This earnings season has been very eventful, with surprises both to the upside and the downside. The good news is that the markets have maintained a bullish posturing which continues to augur further gains.
I am focusing on Check Point Software Technologies Ltd. (NASDAQ:CHKP) stock because I have reason to believe that Check Point Software stock is on the brink of breaking out toward much higher prices.
My beliefs are all technical in nature. Therefore, they are based on a number of technical indicators.
Let’s begin with the signal that has been responsible for supporting the bullish trend in CHKP stock, which is highlighted on the following Check Point Software stock chart.
Chart courtesy of StockCharts.com
This CHKP stock chart illustrates a beautiful bullish trend that has been in development since the first quarter of 2009. This bullish trend is characterized by price action containing a series of higher highs and higher lows.
This price action created the stair-step price pattern that bullish trends are so famous for. In the process, it has taken Check Point Software from a low of $16.80 to where it currently resides at $113.59. This represents a very impressive 576.13% return over a nine-year period.
The bullish trend has been supported by the moving average convergence/divergence (MACD) indicator.
MACD is a momentum indicator that is used to determine whether bullish or bearish momentum is influencing the price action in a stock. Bullish momentum implies that a stock is geared toward higher prices. Bearish momentum implies that a stock is geared toward lower prices.
This indicator is very influential because a stock cannot sustain a move in either direction unless the applicable momentum is supporting it.
For example, in the second quarter of 2009, a bullish cross was generated, indicating that bullish momentum was influencing CHKP stock, creating a path of least resistance geared toward higher stock prices. Since that signal was generated, higher Check Point Software stock prices have followed.
There have been a number of attempts at negating this bullish MACD signal. Each time, a bearish MACD signal was averted. Averted bearish signals should never be ignored because they are an indication of the underlying inherent strength that is fueling the move in this investment.
A testament to this notion is that every time an averted signal was generated, it fueled a new advance that only served to accelerate the bullish trend currently still in development.
As long as the MACD indicator remains in bullish alignment, I can only assume the bullish advance toward higher Check Point Software stock prices should continue. Only when a bearish MACD cross is generated will this assumption be negated.
This is very important information because CHKP is on the verge of breaking above a very significant level of price resistance, which is captured on the following Check Point Software stock chart.
Chart courtesy of StockCharts.com
The significant level of price resistance highlighted on the CHKP stock chart is part of a technical price pattern known as a cup-and-handle price pattern.
Cup-and-handle price patterns are characterized by two distinct troughs, where the first trough is much bigger than the second. These troughs were created because a significant level of price resistance, which resides at $119.00, has prevented Check Point Software stock from moving beyond it.
This level of price resistance was first established in late 2000. Since then, CHKP stock has never traded above it. This level of price resistance is now being tested. Closing above $119.00 on a sustained basis would complete the cup-and-handle pattern, implying that further gains are likely to follow.
The implications of accomplishing this feat are directly correlated to the size of this pattern. The cup-and-handle price pattern has been in development for almost 18 years, which means this is an exceptionally large pattern. This suggests that an exceptionally large reaction is expected to follow once the pattern is completed.
Quantifying this exceptionally large move that may follow is obtained by taking the depth of the cup and extrapolating that value above the significant level of price resistance that defined the pattern. This method suggests that once resistance is broken, $225.00 becomes a viable price objective.
This cup-and-handle price pattern is no ordinary price pattern. The significant level of price resistance responsible for creating the pattern is also the long-standing all-time high. This means it is also the last level of price resistance.
When CHKP stock clears this hurdle on a sustained basis, there won’t be anything left to contain the stock price from advancing. This would open up the door for sky-high prices, where Check Point Software stock can meet or possibly exceed its $225.00 price objective.
Check Point Software stock is approaching an extremely significant level of price resistance. If it is able to break above it on a sustained basis, it will open up the door toward much higher CHKP stock prices.