Etsy Inc: This Setup Could Send ETSY Stock Up 102%
Has ETSY Stock Bottomed?
Etsy Inc (NASDAQ:ETSY) stock has literally been a dog since it went public on April 16, 2015.
Share prices hit a high of $35.74 on that fateful day and have traded downward ever since. ETSY stock lost 83% of its value—from peak to trough. That’s not exactly a confidence-inspiring performance.
I am not here to ramble on about how ETSY stock is a bad investment; I’m here to talk about quite the contrary. I have reason to believe there is an opportunity at hand. Examining the stock’s price charts, I believe Etsy’s shares have put in a significant bottom.
Etsy Stock: This Chart Is Very Important
The following chart illustrates the downtrend that had gripped the shares of ETSY stock.
Chart courtesy of www.StockCharts.com
The first piece of good news is that share prices finally broke out of that downtrend. The pattern of lower highs and lower lows has ceased. This gives reason to be optimistic.
Apart from the optimism created from the broken downtrend, there are a few other key factors that are confirming a trend reversal.
The current setup we are witnessing in ETSY stock is a head-and-shoulders bottom, otherwise known as an inverted head-and-shoulders pattern. The significance of this trading pattern is that it foresees a reversal of the current trend. In a trader’s toolbox, this pattern serves as a major trend reversal indicator.
Chart courtesy of www.StockCharts.com
The pattern consists of three troughs and a neckline, where the middle trough (the head) is the largest and the first and third troughs (the shoulders) are usually of equal size. The neckline is formed by connecting the reaction highs. The setup is confirmed when the price closes above the neckline and a reversal is then at hand.
Not only does this pattern foresee a trend reversal, but it also outlines a possible target upon the stock’s successful break above the neckline. The depth from the head to the neckline is used to project a target price. In this case, the target price is $12.00. This is a projected price—not an absolute target.
On July 14, ETSY stock generated a golden cross. A golden cross is a bullish signal that is produced when a faster moving average (the 50-day moving average) crosses above a slower moving average (the 200-day moving average). Traders use this signal to confirm a bull market is ahead. We can use this signal to further confirm the head-and-shoulders bottom.
The primary price target generated by the head-and-shoulders bottom is $12.00.
My other tools are suggesting other possible targets.
Chart courtesy of www.StockCharts.com
Fibonacci retracement numbers are a very popular tool used by many technical traders. This tool is used to identify counter-trend price objectives. In theory, when a stock breaks a primary trend, shares will retrace approximately 50%–62%.
I have used this tool extensively. I expect shares of ETSY stock to test the Fibonacci 50%–62% retracement zone. This zone will offer great resistance, as traders will be eyeing this area as a target to exit new long positions. This zone currently sits in between $20.00 and $23.00 per share. It provides a potential 100%–120% return from current levels.
The Bottom Line on ETSY Stock
ETSY stock is in the early innings of a trend reversal. Multiple signals are confirming this premise.
It isn’t an everyday occurrence that I stumble upon a position that could possibly double. And from a risk versus return perspective, the kind of investment Etsy stock offers becomes even more attractive.
Image source: Flickr; Image copyright 2012, KnitSpirit
