Ciena Stock Surges, Opening the Door to Much Higher Prices
CIEN Stock: BREAKOUT
Ciena Corporation (NYSE:CIEN) stock is surging on the heels of a better-than-expected earnings report that beat on both the top and bottom lines, blowing consensus earnings estimates out of the water. Ciena stock is up 15% on this news, and in the process, it has completed a very large technical price pattern. This completed technical price pattern is now serving to suggest that CIEN stock is set to appreciate by a considerable amount.
Using chart patterns and indicators from a price chart in order to generate a view on a potential investment is known as technical analysis. I prefer using this method in order to generate a view on an investment because the indications that are produced are timely, and timely indications are instrumental in creating an applicable trading strategy. I am so enamored with this method that I have spent nearly two decades applying and building up my knowledge in this method of analysis.
I am really excited to present my findings because the technical price pattern that was just completed is very large, and the size of a pattern is directly related to the implications it carries. The following Ciena stock chart illustrates this completed technical price pattern.
The very large technical price pattern in question is the symmetrical triangle highlighted on the CIEN stock chart above. Symmetrical triangles are special price patterns, and the one on the chart above is the reason why I am excited about the prospect of this investment moving forward.
Chart courtesy of StockCharts.com
A symmetrical triangle is a price pattern that consists of higher lows and lower highs. The pattern is defined by connecting the respective lows and highs using two converging trend lines. These trend lines represents lower support and upper resistance.
This pattern captures a battle that is being waged between bullish and bearish investors. As this battle progresses, each camp tries to make an advance and the range between support and resistance contracts. This contraction in range causes momentum to build within the pattern, which will finally be released when the pattern is completed. The pattern is completed and a victor is crowned when the stock price breaks above resistance or below support.
The size of the pattern is directly related to the amount of momentum that is built and stored within the pattern. Large patterns are expected to have an equally-sized reaction once the pattern is finally completed. This symmetrical triangle was in development for six years, until today, where the better-than-expected earnings caused the stock price to gap up and complete this pattern.
Gapping above resistance is a significant event. Under such conditions, this gap should be labeled as a breakaway gap. Breakaway gaps rarely get filled and almost always indicate that a new trend has begun.
This new trend is actually just the next leg in a much larger bullish trend in CIEN stock, and the following Ciena stock chart illustrates this notion.
Chart courtesy of StockCharts.com
The CIEN stock chart illustrates that the symmetrical triangle is also a consolidation wave within a larger two-wave structure.
This two-wave structure contains impulse waves and consolidation waves, and I refer to this structure as constructive price action. Constructive price action contains the necessary building blocks to develop and sustain a trend.
The first wave is an impulse wave and it serves to propel the stock price in a linear direction. The second wave is a consolidation wave and it serves to set up the next impulse wave by creating the necessary conditions to do so.
Now that this consolidation wave is complete, a new impulse waves is set to develop. This bullish view is being reinforced by the moving average convergence/divergence (MACD) indicator located in the lower panel of the price chart. MACD is a trend-following momentum indicator that is used to distinguish between bullish and bearish momentum.
The bullish signal-line cross, highlighted on the chart above, is suggesting that bullish momentum is influencing the predominant direction that this investment is trading in, which is supporting the view that higher prices are likely.
The following Ciena stock chart illustrates a level of price resistance that is going to act as the next logical price objective for CIEN stock.
Chart courtesy of StockCharts.com
This price chart clearly shows that a horizontal level of resistance exists at the $50.00 mark. This level acted to thwart any further progress in 2002, 2003, 2004, and 2007. Breaking out of the symmetrical triangle, coupled with the constructive price action, suggests that this level of price resistance is going to be tested once again. From current prices, this represents a significant gain.
Albeit, this bullish view is contingent on the stock price remaining above and not reentering the symmetrical triangle.
Bottom Line on Ciena Stock
Ciena stock broke out of a huge technical price pattern following a better-than-expected earnings report. This completed price pattern is suggesting that CIEN stock is now set to appreciate, and higher stock prices are now expected.
