ETSY Stock: Bullish Backdrop
On May 16, Etsy Inc (NASDAQ:ETSY) stock popped following news that there were activist investors stepping into this investment in order to make strategic changes that would ultimately extract much-needed value for the shareholder base. This has translated into a number of bullish developments on the ETSY stock chart that are suggesting that this online retailer is setting up, and ready to stage, a further advance.
These developments began in February of last year and my interest in this company was first piqued in July 2016, where I published a report titled “Etsy Inc: This Setup Could Send ETSY Stock Up 102%.” In that report, I outlined a number of developments that were suggesting that the stock price was set to advance. The developments that led to this conclusion were a number of technical indicators generated on the company’s stock chart.
This same method of analysis is what has led me to my current conclusion that ETSY shares are set up, and ready to stage an advance from their current levels.
The following Etsy stock chart illustrates a number of indications that have created a bullish backdrop, which supports the notion of further price gains.
Chart courtesy of StockCharts.com
Constructive price action and the moving average convergence/divergence (MACD) indicator are both in bullish alignment, which is creating a bullish backdrop.
Constructive price action consists of an alternating wave structure.
The first wave of this alternating wave structure is an impulse wave and it serves to define when an investment is staging an advance. This wave is highlighted in green on the chart above.
The second wave of this alternating wave structure is a consolidation wave and it serves to define a counter-trend move, where overbought conditions are unwound in order to set the stage for a new advancing impulse wave to develop. This wave is highlighted in purple on the chart above.
These waves feed off each other, thereby generating the necessary conditions in order to create a sustainable trend. In May, ETSY shares exited the consolidation wave in an upward direction, indicating that the consolidation wave was complete. This suggested that a new impulse wave is now in development, and higher stock prices are expected to follow as Etsy stages an advance.
MACD is an indicator that is used to determine whether bullish or bearish momentum is influencing the predominant direction that a stock is trading in. These signals are generated when there is a crossing of the signal line, and these signals are highlighted in the lower panel of the chart above. These signals have an impeccable track record of confirming the type of wave that is in development.
In December 2015, a bullish MACD cross was generated. This indication served to suggest that bullish momentum was influencing ETSY shares, and therefore the path of least resistance was geared towards higher stock prices. This signal accurately suggested that an impulse wave was in development.
In October 2016, the bullish MACD cross gave way to a bearish MACD cross. This indication served to suggest that bearish momentum was creating a headwind that was pressuring the share price lower and preventing an advance. This signal accurately suggested that a consolidation wave was in development.
In May, a bullish MACD cross was generated, which coincided with the completion of the consolidation wave. These two indications suggest and confirm that an advance is underway, which is being influenced by bullish momentum. These indications have created a bullish backdrop that warrants holding a bullish view on ETSY shares.
The following stock chart illustrates the pattern that is setting up the next move in Etsy stock.
Chart courtesy of StockCharts.com
This price chart illustrates the effects of the news that was disseminated on May 16. This news caused Etsy shares to leave a sizable gap on the price chart, which caused the generation of the bullish MACD cross and the completion of the consolidation wave.
Because of the strategic position of this gap, the implications that it conveys are more significant. So as a result, I have labeled this sizable gap as a “breakaway gap.” Breakaway gaps rarely get filled, and almost always suggest that a new advancing wave has begun.
The trading range that followed this gap is setting up the next move in Etsy’s share price. The pattern that is being painted on the stock chart is a pennant, and the direction in which shares exit this pattern will dictate the direction ETSY shares are likely to take next.
The bullish backdrop supports a bullish resolution of this pennant price pattern, and the breakaway gap reinforces this notion. Therefore, a move above $14.00 would suggest that Etsy stock is set to stage another leg higher in this new reinvigorated run toward higher prices.
Bottom Line on Etsy Stock
Investor activism has created a bid for Etsy stock. This bid has caused the generation of a number of bullish indications, which are suggesting that higher stock prices are likely to follow.