Garmin Stock Is Setting the Stage for an Explosive Breakout

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GRMN Stock: Embedded Technical Price Patterns

My attention is focused on Garmin Ltd. (NASDAQ:GRMN) stock because a very compelling technical price pattern is being painted on the Garmin stock chart. I am actually quite excited because this particular price pattern that is currently in development is well known for its explosive breakouts. On a standalone basis, this development would be enough to stem a large amount of excitement, but what makes GRMN stock extremely special at the moment is that this powerful technical price pattern is embedded within a much larger technical price pattern.

What this means is that a resolution of the small pattern will set off the resolution of the larger pattern, which will create a chain reaction, magnifying the reaction once it occurs.

Technical price patterns are a subsection within the body of knowledge known as technical analysis. This is the method of analysis I employ in order to generate a view on an investment. I have spent almost two decades studying and applying this methodology and have become quite proficient in this craft. The reason why I have devoted so much time to this method of analysis is that when it is applied appropriately, the results are simply outstanding.

The following Garmin stock chart illustrates the technical price pattern that is currently in development.

Chart courtesy of StockCharts.com

This GRMN stock chart illustrates that since early August of last year, the technical price pattern known as an ascending triangle has been in development.

This pattern is defined using two converging trend lines. A horizontal trend line defines resistance and an upward-sloping trend line defines support. These trend lines capture the price action that generates this price pattern.

As the pattern progresses, the distance between support and resistance continues to contract. This contraction of space causes momentum to build within the pattern. This momentum will eventually be released when Garmin stock exits the pattern by breaking above resistance or below support.

The size and scope of the pattern is directly related to the reaction that can be expected once the pattern resolves itself. Bigger patterns over longer time frames are expected to produce larger and longer reactions. This is why triangle patterns are particularly powerful and explosive price patterns.

This ascending triangle has been in development for 13 months, making it a very significant price pattern, and a large reaction can be expected once the pattern is resolved.

An ascending triangle on its own is reason enough for excitement, but in actuality, this ascending triangle is just a small piece of a much larger technical price pattern.

The following Garmin stock chart illustrates this much larger technical price pattern.

Chart courtesy of StockCharts.com

This GRMN stock chart illustrates that the ascending triangle is actually just a part of much larger technical price pattern known as a cup and handle pattern.

The cup and handle price pattern is created as a result of a significant level of price resistance that contains the price from advancing. This level of price resistance sits at $53.30 and it was first established in June 2014.

After this level of resistance was established, a substantial sell-off ensued and GRMN stock lost 46.78% from peak to trough. It took over two years to return to this level of price resistance, but once this level was attained, it created the cup. Once again a sell-off ensued from this level, but this one was muted in comparison. The resulting reaction created the ascending triangle, which also doubles as the handle that defines the cup and handle price pattern.

Once GRMN stock closes above $53.50, it will complete the cup and handle price pattern, indicating that higher prices are on the horizon. The great thing about this pattern is that aside from suggesting that higher stock prices are on the horizon, it also is generous enough to provide a potential price objective.

This objective is easily created by taking the depth of the head and extrapolating that value above the significant level of price resistance. Applying this logic to the price pattern on the Garmin stock chart produces a price objective of $75.00.

StockAnalyst Take:

 I am watching for Garmin stock to break above $53.50 because it will complete a very large technical price pattern. Containing my excitement once this feat is accomplished might be a difficult task because the repercussions of this pattern suggest that an explosive move in GRMN stock is something that is to be expected.