Coinciding Indications Are Implying That Higher CSOD Stock Prices Are on the Horizon
The first part of this year was a tenuous one for investors. The markets were weak and the environment put many investors and traders on edge. Maintaining a bullish bias during this period was a difficult task.
Once May came rolling around, the investment community was throwing around the old adage that “selling in May and going away” was potentially a good investment strategy. Boy, were they wrong!
The Russell 2000 index has gone on to make new all-time highs and the Nasdaq Composite index has followed suit. The markets have come out charging for higher values in June.
I am focusing on Cornerstone OnDemand, Inc. (NASDAQ:CSOD) stock because in May 2018, it completed a technical price pattern that is now suggesting that higher CSOD stock prices are likely to follow.
This pattern is highlighted on the following Cornerstone OnDemand stock chart.
Chart courtesy of StockCharts.com
The technical price pattern highlighted on this CSOD stock chart is a cup and handle price pattern.
Cup and handle price patterns are created when a significant level of price resistance prevents the stock price from advancing beyond it. This inability to advance beyond a significant level of price resistance creates two distinct troughs.
Identifying this pattern is quite simple because the first trough is always much bigger than the second, creating the infamous cup and handle price pattern.
The significant level of price resistance that was responsible for creating the cup and handle pattern on the Cornerstone OnDemand stock chart resided at $47.00. This price point first became price resistance in June 2014 and, for the next four years, CSOD stock was contained beneath it.
In May 2018, Cornerstone OnDemand stock was finally able to sustain a close above $47.00. This resulted in a breakout above resistance, completing the pattern.
A completed cup and handle price pattern suggests that higher prices are likely to follow, for the simple reason that there is no longer a level of resistance to stop the price from advancing. Therefore, the stock price is free to appreciate.
Cup and handle patterns are not standalone patterns; they are continuation patterns. The cup and handle pattern on the CSOD stock chart is continuing a bullish trend that began in September 2011.
This bullish trend can be subdivided into a well-defined wave structure, which is highlighted on the following Cornerstone OnDemand stock chart.
Chart courtesy of StockCharts.com
This well-defined wave structure highlighted on the above stock chart has been responsible for creating the bullish trend in CSOD stock.
This wave structure consists of impulse waves and consolidation waves.
The waves highlighted in green on the chart are impulse waves, and they define the period in a bullish trend when a stock stages a sustained move toward higher prices. These waves are advancing in nature, and all the gains in a bullish trend are captured within this wave.
The waves highlighted in purple are consolidation waves, and they define the period in a bullish trend when the stock price corrects and refrains from advancing. These waves are corrective in nature, and all the countertrend moves are captured with this wave.
Traders would opt to avoid countertrend moves because booking gains in this environment is often very difficult.
This doesn’t mean that consolidation waves are not important. On the contrary, I purposely seek out consolidation waves because, once they are completed, the sought-after impulse wave will follow.
The cup and handle price pattern doubles as a consolidation wave, and its completion is suggesting that an advancing impulse wave is now in development.
This notion of higher CSOD stock prices suggested by the impulse wave is being supported by the moving average convergence/divergence (MACD) indicator.
MACD is a very influential momentum indicator that uses the crossing of a signal line 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, while bearish momentum implies that a stock is geared toward lower prices.
A stock cannot sustain a move in either direction unless the applicable momentum is supporting it. This is why impulse waves are often accompanied by a bullish MACD cross, while consolidation waves are often accompanied by a bearish MACD cross.
The completion of the consolidation wave has coincided with a bullish MACD cross, and these coinciding indications are reinforcing the notion that an impulse wave is now in development and that higher Cornerstone OnDemand stock prices are on the horizon.
I am bullish on Cornerstone OnDemand stock because a number of technical indications on the CSOD stock chart are suggesting that the stock is ready for higher prices. I will retain this bullish view as long as the technicals continue to support it.