EW Stock: Technical Signals Remain Intact
The S&P 500 is flat on the year, but it sure doesn’t feel that way. This has been a difficult market to navigate in 2018, due to the elevated levels of volatility, but that does not mean there are not still pockets of strength out there.
I am returning to focus on Edwards Lifesciences Corp (NYSE:EW) stock because I want to point out that even though the EW stock price suffered a slight setback after its earnings announcement, the downward pressure has done little to negate the bullish implications that I outlined on March 19, 2018, in a publication titled “This Is Why Edwards Lifesciences Stock Is Geared Toward Higher Prices.”
In fact, the price action remains quite constructive, and as long as the EW stock price does not trade back within the price pattern that first initiated my bullish view, then the bullish implications suggested by it remain intact, and a move toward higher Edwards Lifesciences stock prices is still in development.
The price pattern I am referring to is highlighted on the following Edwards Lifesciences stock chart.
Chart courtesy of StockCharts.com
The technical price pattern highlighted on the EW stock chart is a cup-and-handle pattern.
These patterns are characterized by two distinct troughs, where the first is much larger than the second. The troughs are created because a significant level of price resistance prevents the stock price from advancing beyond it. In this case, resistance resided at $122.00.
The completion of this pattern implied that higher EW stock prices were likely to prevail, which is where my bullish view originated from.
After this pattern was completed, Edwards Lifesciences stock appreciated by 14.26% before a correction ensued. This correction gathered speed after earnings were released and it caused EW stock to test the level of price resistance that was responsible for creating the cup-and-handle price pattern.
Returning to test a previous level of price resistance after a breakout is called a backtest. A backtest serves to reaffirm that the original break above resistance was legitimate while simultaneously establishing this price point as a new level of price support.
As long as Edwards Lifesciences stock remains above this price point, the bullish implications suggested by the completed cup-and-handle price pattern stay intact.
The implications suggested by the completed pattern and the price action that follow are magnified when combined with the price action that preceded it.
This entire package of price action is highlighted on the following Edwards Lifesciences stock chart.
Chart courtesy of StockCharts.com
This stock chart highlights the wave structure and an influential momentum indicator that has been responsible for creating the bullish trend in EW stock.
This wave structure consists of alternating waves, which include impulse waves and consolidation waves.
The waves highlighted in green are impulse waves, and they define the period in a bullish trend when a stock stages a sustained move toward higher prices.
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.
The cup-and-handle price pattern is a consolidation wave. A bullish trend cannot be created without a consolidation wave because they create the necessary conditions where a new advancing impulse wave can follow.
The completion of the consolidation wave implies that an impulse wave is in development and that higher Edwards Lifesciences stock prices are likely. The sell-off that followed earnings has done nothing to suggest otherwise.
This notion of the development of higher prices is still being reinforced by the moving average convergence/divergence (MACD) indicator.
MACD is a very influential momentum 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 geared toward higher prices, while a bearish momentum implies that a stock is geared toward lower prices. The reason why this is an influential indicator is because a stock cannot sustain a move in either direction unless the applicable momentum is supporting it.
A testament to this statement is that every bullish MACD cross has coincided with an impulse wave, and every bearish MACD cross has coincided with a consolidation wave.
A bullish MACD cross was created in January, supporting the notion that an impulse wave is currently in development, and the sell-off that followed earnings has done little to negate this signal. Therefore, higher Edwards Lifesciences stock prices are still expected.
I am still bullish on Edwards Lifesciences stock, and the sell-off that followed earnings has done little to negate the bullish indications that were responsible for creating my bullish view on EW stock in the first place.