HPQ Stock: Compilation of Bullish Indications
HP Inc (NYSE:HPQ) stock reported earnings on August 23, and it beat on both the top and bottom lines. The initial reaction was not good, as HPQ stock dropped by just over three percent in after-hours trading. The good new is that it seems as though cooler heads prevailed. The initial sell-off that transpired on August 23 didn’t translate into the next day’s trading action, because HP stock was trading higher by 3.92% on the day.
The most impressive part of August 24’s gains, aside from shrugging off the previous day’s reaction, is that it served to complete a technical price pattern. That technical price pattern is now suggesting that a move toward higher prices is in its infancy.
When I refer to technical price patterns, I am referring to a body of knowledge known as technical analysis. This method of investment analysis is based on the notion that historical data points can be used to discern a trend and forecast future stock prices. I have been studying and using this method to create investment views and strategies for nearly two decades. Technical analysis provides great value and, more importantly, it works..
The technical price pattern that was just completed is illustrated on the following HP stock chart.
Chart courtesy of StockCharts.com
This HPQ stock chart has been annotated in order to highlight the cup and handle price pattern that was just completed. A cup and handle pattern is a continuation pattern. It reaffirms the predominant trend, which, in this case, is a bullish trend.
This pattern is identified by its distinct shape, which resembles a teacup. The pattern contains two troughs, and the first trough is much larger than the second. These troughs are a direct result of this investment’s inability to break above a significant level of price resistance. In this case, HP stock was having trouble breaking above $19.40.
The first time HP stock reached this level, a sell-off ensued and HPQ stock fell by 11.86% before it was finally able to find its footing. The second time it reached that level, a smaller reaction occurred and HPQ stock only dropped by 5.9%. The recent earnings announcement is acting as the catalyst to complete this pattern, which implies that higher prices are on the horizon.
What makes this pattern special is that it is embedded within another technical price pattern that is illustrated on the following HPQ stock chart.
Chart courtesy of StockCharts.com
HPQ stock has been in a bullish trend since February 2016. This trend contains the quintessential characteristic that defines a bullish trend, which is a systematic series of higher highs and higher lows. This trend is captured and encapsulated in an ascending channel.
This ascending channel is defined by using two parallel trend lines that are characterized with an upward slope. These trend lines represent levels of price resistance and price support. HPQ stock has been confined within these levels of price support and resistance since the rally began in 2016. As long as the share price oscillates between these two trend lines, the bullish advance remains intact, and in development.
This ascending channel has been supported by a golden cross. This bullish signal is produced when the faster 50-day moving average (highlighted in blue) crosses above a slower 200-day moving average (highlighted in red). This signal is used to confirm that a bull market is in development. The price action that followed is a testament as to why it is always wise to trade in the direction suggested by this signal.
The cup and handle pattern was completed inside the ascending channel, suggesting that the bullish advance is set to continue. I can only assume that resistance outlined by the ascending channel is the next logical price objective.
As long as the HP stock price continues to trade within the ascending channel—and the moving averages that created the golden cross are in bullish alignment— the bullish trend toward higher prices will still be in development. The completed cup and handle pattern is acting as an indication that an advance is occurring within its larger bullish trend.
HP stock just completed a technical price pattern which is suggesting that the stock price is set to make an advance. This advance is within the confines of a much larger bullish trend, which is also being supported by bullish indicators.
This compilation of indicators reinforces the bullish notion because it creates a bullish tailwind that paves the path of least resistance toward higher HPQ stock prices.