EL Stock Chart Indicators Embedded Until They Are Not
The first three months of the year have just concluded, and they were not fun for stock investors, to say the least. Volatility has reared its ugly head, causing the markets to swing wildly. With it, emotions are running high.
Technology stocks have taken it on the chin in recent weeks, which may be of some concern because underperformance in this sector could be suggesting that the economy is in the late stages of an expansion. If this is indeed the case, sectors like healthcare, utilities, and consumer staples thrive in such an environment.
The reason I bring this up is that I’m currently focusing on Estee Lauder Companies Inc (NYSE:EL). In one respect, it is comforting knowing that Estee Lauder stock falls within the consumer staples subgroup.
I assure you, however, that the sector it falls in has nothing to do with why I like it. What caught my eye is that EL stock has an impeccable bullish trend, which has been supported by a number of embedded indicators.
The impeccable bullish trend—and an indicator that has been supporting it—is highlighted on the following Estee Lauder stock chart.
Chart courtesy of StockCharts.com
This stock chart illustrates that this impeccable bullish trend was created by price action consisting of higher highs and higher lows, which is a quintessential characteristic that defines all bullish trends.
The development of this bullish trend was reinforced when a golden cross was generated in April 2017. A golden cross is a signal that is generated when the faster 50-day moving average (highlighted in blue), crosses above the slower 200-day moving average (highlighted in red). This signal suggests that a bull market is in development.
The moving averages that were used to create the golden cross are very influential and, since January 2017, the EL stock price has been using the 50-day moving average as a significant level of price support.
Each and every time the 50-day moving average has been tested, the Estee Lauder stock price has regained its footing and higher EL stock prices have prevailed.
This price action can be described as being embedded above the 500-day moving average. As long as the price action continues to be embedded above that moving average, I can only assume that higher stock prices will prevail.
I highlighted a price gap on the Estee Lauder stock chart that occurred on November 1, 2017 on the heels of a better-than-expected earnings report. I labeled the gap as a continuation gap, because it remains open and has yet to be filled.
Gaps in price such as this one usually mark the midpoint of a trend. If this is the case with EL stock, it reinforces the notion that further gains are to be made.
These indications are not the only ones that are embedded and are supporting a move toward higher El stock prices. The following Estee Lauder stock chart illustrates a very influential momentum indicator and an oscillator, both of which have taken part in supporting the bullish advance.
Chart courtesy of StockCharts.com
The technical indicators highlighted on this EL stock chart are the relative strength indicator (RSI) and the moving average convergence/divergence (MACD).
Let’s begin with RSI, which is located in the upper panel of the above stock chart. This indicator is an oscillator that distinguishes between overbought and oversold conditions. An RSI reading above 70 is deemed overbought, while a reading below 30 is deemed oversold.
The RSI indicator on the Estee Lauder stock chart has been embedded in overbought territory since May 2017 and, contrary to popular belief, this does not mean the stock is likely to correct. In reality, once a stock becomes overbought, it remains overbought and this is when it is likely to make an exponential move toward higher prices.
So it’s safe to assume that, as long as the RSI indicator is embedded above 70, the trend toward higher EL stock prices will continue. Only when the RSI indicator closes below 70 will it suggest that the move toward higher prices has run its course and that a correction is likely to follow.
The next indicator is the MACD, and it is located in the lower panel of the above stock chart.
MACD is a momentum indicator that uses the crossing of a signal line in order to distinguish whether bullish or bearish momentum is influencing the price action in a stock. Bullish momentum influences a stock toward higher prices, while bearish momentum influences a stock toward lower prices.
This is a very influential indicator because a price cannot sustain a move in either direction unless the applicable momentum is supporting it.
A bullish MACD cross was generated in January 2017 and, since that date, Estee Lauder stock has been appreciating. Like the indications that have come before this one, as long as the MACD indicator remains embedded in bullish alignment, I can only assume that higher EL stock prices are in development.
Only when a bearish MACD cross is generated will the bullish implications suggested by this indicator be negated, which will imply that the move toward higher stock prices has concluded and that a correction is on the horizon.
Given the nature of these technical indicators, if one indicator generates a bearish signal, it is likely that the rest will follow. This is why I am watching all of them; as soon as one turns, the rest will follow.
The bullish trend on the Estee Lauder stock chart has been supported by a number of embedded technical indicators.
As a result of this phenomenon, I will maintain a bullish view on EL stock as long as all of the indicators I outlined remain embedded in bullish alignment. As soon as one indicator turns, I expect the rest to follow, indicating that a correction has begun.