This Is Why Dynegy Stock Is Geared Toward Higher Prices

dynegy stock analysis
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DYN Stock: Showing Signs of Inherent Strength

The current market environment is downright dreadful. Volatility is high, and it has been elevated since late January. High volatility is conducive to lower index values and, as long as volatility remains elevated, lower index values will prevail. The only solace I have to offer is that volatility is like an emotion, and eventually it will subside.

From my perspective, volatile markets could mean one of two things. The first is that there is currently a change of leadership going on and that, when the volatility subsides, a new subgroup will do the heavy lifting and lead the markets higher. The second is that a major top is being formed, which will mean that a prolonged bear market is on the horizon.

At this moment, I do not have enough indications to support the notion that a bear market has begun. Therefore, I have to assume that a change in leadership is at hand.

I am currently focusing on Dynegy Inc. (NYSE:DYN) because it is currently standing tall against selling pressure that is currently plaguing the stock market. This is a sign of inherent strength, which is probably—as you guessed it—a leadership quality.

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Aside from this notion, I find the DYN stock chart very compelling and conducive to higher stock prices, which is what I look for in a potential investment.

The following Dynegy stock chart illustrates the technical indications which are suggesting that DYN stock is currently geared toward higher stock prices.

Chart courtesy of StockCharts.com

This DYN stock chart highlights a trend which began its development in June 2015. This trend contained the quintessential characteristic that defines all bearish trends: a sequence of lower highs and lower lows.

This bearish trend was captured using a simple downtrend line, which was created by connecting the sequence of lower highs. This downtrend line defines the bearish trend by providing the level where price resistance resides.

In October 2017, Dynegy stock slowly slipped out of this downtrend line and broke above it on a sustained basis. This breakout, which is highlighted on the DYN stock chart, implies that the bearish trend toward lower prices has concluded and that, therefore, the stock price is finally free to appreciate.

This trend reversal in Dynegy stock was already being suggested by the moving average convergence/divergence (MACD).

MACD is a trend-following indicator that uses the crossing of a signal line to distinguish whether bullish or bearish momentum is influencing the price action in a stock.

Bullish momentum implies that a stock is like to appreciate, while bearish momentum implies that a stock is likely to depreciate.This is very pertinent information because a stock cannot sustain a move in either direction unless the applicable momentum is supporting it.

For example, the entire time that the bearish trend was in development, the MACD indicator was also in bearish alignment. It was not until July 2017 that a bullish MACD cross was generated, implying that the DYN stock was likely to appreciate—and that is exactly what happened.

The following stock chart illustrates the trend that developed after Dynegy stock put in a bottom.

Chart courtesy of StockCharts.com

This Dynegy stock chart illustrates that, in May 2017, when DYN stock forged a bottom, the price action had been in an orderly and well defined bullish trend.

This bullish trend is the complete opposite of a bearish trend and, therefore, it contains the quintessential characteristic that defines all bullish trends, which is a series of higher highs and higher lows.

Capturing this bullish trend was a little different than the bearish trend that preceded it, and it was accomplished by using an ascending channel. This technical price pattern was created by using two upward-sloping trend lines. Price support was obtained by connecting the higher lows, and resistance was obtained by connecting the higher highs.

Using the ascending channel is quite simple and, as long as Dynegy stock continues to oscillate within it, I can only assume that this well-defined bullish trend is still in development, which translates into higher stock prices over time.

Last October, I highlighted the price gap in the stock chart, because this is where the breakout above the downtrend line occurred. Breakaway gaps are very significance because they suggest that a new trend has begun.

Analyst Take

I am bullish on Dynegy stock because a number of indications are supporting the notion that DYN stock is currently geared toward higher prices. I will maintain my bullish stance until the price action suggests that a bullish stance is no longer warranted.