CIEN Stock: Patience Is Warranted
All of a sudden, the markets have gone from a tranquil walk in the park to a wild roller coaster ride. The low volatility environment that defined the market action for all of last year has completely disappeared and fear is once again in the air. Volatility levels are currently elevated and this directly correlates with the anxiety some investors are currently experiencing.
I have seen such price action before, and as result, I have the inclination to believe that markets are likely going to find their footing in the not-too-distant future. Once again, higher stock prices and lower levels of volatility will prevail.
In light of this, I am turning my attention to a technical pattern currently being painted on Ciena Corporation (NYSE:CIEN) stock chart. To say this pattern is large is an understatement, and when the day comes that it is resolved, I expected a larger-than-life move in CIEN stock to develop.
This technical price pattern is highlighted on the following stock chart.
Chart courtesy of StockCharts.com
The technical price pattern highlighted on the Ciena stock chart is a symmetrical triangle pattern. Symmetrical triangle patterns develop when the price action on a stock is characterized by a sequence containing a series of lower highs and higher lows.
Connecting the series of lower highs and higher lows using a trend line defines the symmetrical triangle and establishes important levels of price resistance and price support.
The resolution of this pattern will be determined on whether Ciena stock can break above resistance or fall below support. Once a resolution is reached, I expect an explosive outcome to follow because triangle patterns are known for such an exact characteristic.
The reason for this is because, as the pattern develops, the contraction of space created between support and resistance causes momentum to build in the pattern. The longer this pattern is in development, the larger the reaction that can be expected once it is resolved. The triangle pattern on the Ciena stock chart is currently in its seventh year of development, making it a very large pattern. As a result, a very large reaction is expected to follow.
On average, triangle patterns reach a resolution when 70% of the pattern is complete. The triangle pattern highlighted on the CIEN stock chart is approaching that marker, suggesting that the pattern cannot continue forever and that a resolution is likely to occur in the months ahead.
The symmetrical triangle is actually just a piece of a much larger wave structure which can be used to project what kind of reaction can be expected to occur once the pattern is resolved.
This wave structure is highlighted on the following stock chart.
Chart courtesy of StockCharts.com
This Ciena stock chart has been annotated in order to highlight the alternating wave structure of impulse waves and consolidation waves.
The wave highlighted in green is an impulse wave. It is advancing in nature and captures the stage in a bullish trend when the stock sustains a move toward higher prices.
The wave highlighted in purple is a consolidation wave. It is corrective in nature and captures the stage in a bullish trend when the stock price refrains from advancing and instead corrects. This wave is an essential part of every bullish trend because it creates the necessary conditions so the impulse wave that follows can sustain a move toward higher prices.
The symmetrical triangle currently in development doubles as a consolidation wave, and when it is completed, an impulse wave is expected to follow.
For argument’s sake, let’s assume that this pattern on the CIEN stock chart will resolve itself in a bullish manner and, therefore, an impulse will follow. The great thing about this wave structure, aside from the obvious, is that it can be used to create a potential price objective.
This price objective is obtained based on the notion that impulse waves separated by a consolidation wave tend to mirror each other. Based on the stage that the current bull market is in, I will use a method called the “parabolic extension,” which assumes that the developing impulse wave will mirror the impulse wave that preceded it in terms of length.
Applying this to the wave structure painted on the Ciena stock chart suggests that $50.00 is a plausible price objective. Given the size of the triangle currently in development, I won’t and can’t argue against it because a sizable move in CIEN stock is expected.
I am watching a very large technical price pattern on the Ciena stock chart that will determine what CIEN stock does next. The size of the pattern is very large and, therefore, a very large reaction is expected to follow once this pattern is resolved, making this one investment worth watching.