CIEN Stock: Still Destined to Test $50.00
The current market conditions are not exactly something you want to brag about. They have been less than stellar, and that is putting things lightly. Since the first weeks of October, I have expressed concerns with this market.
I warned about the likelihood that the bull market that began in 2009 is petering out and a top is being put in. This is bearish news, and the ramifications of it going forward are not good.
But there is some good news. For one, it does not preclude the notion that select stocks cannot flourish in this environment. As the saying goes, “there is always a bull market somewhere.”
In order to prove this point, we can look to the stocks that have been able to stage an advance during the turbulent market conditions that have plagued the markets over the last few weeks.
Take Ciena Corporation (NYSE:CIEN) stock for starters. It was able to forge a new multi-year high in November, completely brushing aside the fact the markets were very weak during this time frame. The reason why CIEN stock was able to behave in such a bullish manner is because it was already geared for higher stock prices.
For those who can recall, on September 5, in a publication titled “CIEN Stock Breaks Out, Putting My $50.00 Price Objective into Play,” I outlined a completed technical price pattern suggesting that CIEN stock was poised to make an advance.
That completed price pattern is highlighted on the following CIEN stock chart.
Chart courtesy of StockCharts.com
The Ciena stock chart above captures the infamous ascending triangle price pattern.
This pattern is created when the price action is characterized by a static high that is accompanied by a series of higher lows.
Capturing this pattern was accomplished by simply connecting the peaks and troughs that were created by the price action. The end result is two converging trend lines that depict an ascending triangle.
Triangles are among my favorite technical patterns. These patterns have the ability to create and store energy as they develop. This stored energy is only released when the pattern is completed, which is why powerful moves usually follow.
This is where the trend lines come into play, because in order to complete the pattern, the stock needs to exit the pattern. That is exactly what happened when CIEN stock completed the pattern on August 30.
In that month alone, the Ciena stock price appreciated to the tune of 24.33%, and it also marked an interim high. In October, Ciena stock returned to test the breakout point from above.
Returning to test a previous level of price resistance is called a backtest. This event has been highlighted on the chart above. It serves to reaffirm that the original break above resistance was legitimate, while simultaneously establishing this price point as a significant level of price support.
Waiting for a backtest to occur after a bullish breakout has proven to be a fruitful endeavor because backtest often act as launching pads. Once they have been completed, stocks have a tendency to accelerate toward higher prices. There is no need to take my word for it because once this backtest was completed, CIEN stock went on to make a new subsequent high.
The implications of this event and the completed ascending triangle continue to resonate. As I mentioned in my previous publication, I believe that Ciena stock is destined to test $50.00.
$50.00 is not some arbitrary price point that I plucked out of thin air. It is actually a significant level of price resistance.
This level of price resistance is highlighted on the following CIEN stock chart.
Chart courtesy of StockCharts.com
The chart above illustrates that a horizontal level of price resistance resides at the $50.00 price point.
This level of price resistance was first established in December 2002. It was later tested in January 2004, and once again in October 2007. After the last failed attempt, Ciena stock went on to make new lows. This level of price resistance has not been tested since.
I believe that the completed price pattern, the backtest that followed, and CIEN stock’s ability to make gains in a turbulent market are all factors reinforcing the notion that $50.00 still remains a plausible price objective that is likely to be tested once again.
Despite the turbulent market conditions, I am maintaining my bullish view on Ciena stock. I will maintain this bullish view on CIEN stock as long as the price action continues to suggest that such a view is warranted. At this moment, breaking below $27.50 would negate this view.