DXCM Stock: A Momentum Indicator Implies That a Breakout Is Imminent
I am not going to pretend like I am enjoying the current stock market environment, because I am not. The market indices have been creating a series of lower highs, which can only be described as bearish.
In light of this price action, one could assume that I would change my overall stance. I want to reiterate that I have not, and that I continue to maintain a bullish bias.
This could turn out to be a foolish stance, but I have my reasons to believe that the markets are still poised for further gains. These beliefs are being supported by the market’s ability to maintain its footing above key levels of price support.
My bullish bias is why I continue to focus on investments like DexCom, Inc.(NASDAQ:DXCM) stock, which I obviously believe is poised for further gains.
The reason why I believe DexCom stock is poised for further gains is that it is on the verge of completing a technical price pattern that would imply that much higher DXCM stock prices are likely to follow.
The technical price pattern on the verge of a breakout is highlighted on the following DXCM stock chart.
Chart courtesy of StockCharts.com
The pattern highlighted on the DexCom stock chart is a descending channel.
A descending channel is a price pattern characterized by price action that contains a series of lower highs and lower lows, which is the quintessential characteristic that defines a bearish trend.
I defined this bearish trend using two downward-sloping parallel trend lines that were created by connecting the series of lower highs and the series of lower lows. These parallel downward-sloping trend lines define significant levels of price resistance and price support. As long as DXCM stock is contained within them, lower prices are likely to prevail.
In order to negate the bearish implications suggested by this price pattern, DexCom stock would need to break above the upper trend line that represents price resistance. Such a feat would imply that the bearish trend has run its course and that higher DXCM stock prices are on the horizon.
I have the inclination to believe that such an event is very likely to occur in the near future. A very influential momentum indicator, which is highlighted on the following DXCM stock chart, supports this notion.
Chart courtesy of StockCharts.com
This DexCom stock chart highlights a momentum indicator that has been supporting a wave structure responsible for creating and sustaining a bullish trend.
This wave structure consists of impulse waves and consolidation waves.
The impulse waves, which are highlighted in green, are advancing in nature. They capture the stage in a bullish trend when a stock makes a sustained move toward higher prices.
The consolidation waves, which are highlighted in purple, are corrective in nature. They capture the stage in a bullish trend when a stock corrects and refrains from advancing.
The descending channel on the verge of a breakout is a consolidation wave within this wave structure, and its bearish price action is creating the necessary foundation from where an impulse wave can follow.
The moving average convergence/divergence (MACD) indicator is suggesting that the descending channel is approaching completion, and an impulse wave is likely to follow.
MACD is a simple yet effective momentum indicator that distinguishes whether bullish or bearish momentum is influencing the price action in a stock. Bullish momentum implies that a stock is likely to advance, while bearish momentum implies that a stock is likely to decline.
The reason why the MACD indicator is so influential is that a stock cannot sustain an advance or a decline unless the applicable level of momentum is supporting it.
This is why it is not sheer coincidence that the waves within this structure have coincided with this indicator.
Since the financial crisis concluded in 2009, every impulse wave has been supported by a bullish MACD signal, and every consolidation wave has been supported by a bearish MACD signal.
A bullish MACD cross is currently being generated this month, and it is supporting the notion that a breakout is imminent, suggesting that DexCom stock is likely to sustain a move toward higher prices via an impulse wave.
I have reason to believe that DexCom stock is on the verge of breaking out of a technical price pattern, which will result in a sustained move toward higher DXCM stock prices.