IMMR Stock: Large Patterns Produce Larger Reactions
The month of May has come and gone. I have not sold, and I have not gone away. Instead, I am still here and I feel great going into the latter half of 2018.
The reason why is that the elevated levels of volatility that were responsible for the tenuous markets in the first quarter have subsided and cooler heads are once again prevailing.
Both the Russell 2000 small-cap index and the Nasdaq Composite index have gone on to make new highs, suggesting that the weakness that the markets experienced earlier this year was just a much-needed correction within a predominantly bullish trend.
As I mentioned, small-cap stocks and technology stocks are currently the sectors leading the market indices higher. In light of these events, I have decided to focus on Immersion Corporation (NASDAQ:IMMR) because Immersion stock is both a technology stock and a small-cap stock. If these sectors are going to continue to outperform, then odds are that IMMR stock will too.
In all honesty, being in the correct sector will help fuel a move if one is going to occur, but it is not the main reason why I have chosen Immersion stock.
The main reason is technical in nature. IMMR stock has recently completed an extremely large technical price pattern, and its completion of this pattern implies that an equally large move is now expected to follow.
This technical price pattern is highlighted on the following Immersion stock chart.
Chart courtesy of StockCharts.com
The technical price pattern highlighted on the IMMR stock chart is a cup and handle price pattern.
Cup and handle patterns are created when a significant level of price resistance prevents the stock price from advancing beyond it. The significant level of price resistance on the Immersion stock chart was established in July 2007.
IMMR stock’s inability to advance beyond this level of resistance was responsible for creating two distinct troughs. In a cup and handle price pattern, these troughs are what characterize this pattern. It is worth noting when identifying this pattern that the first trough is always much bigger than the second.
In May, almost 11 years after resistance was first established, Immersion stock was finally able to break above that resistance level, completing the cup and handle price pattern.
The completed price pattern implies that higher IMMR stock prices are now in development, for the simple reason that the stock price is free to appreciate because there is no longer a level of resistance to contain it.
The implications of this completed pattern are directly related to its size. This pattern is extremely large. Therefore, an extremely large reaction is now expected to follow.
The great thing about this pattern is that it not only suggests that a large move is on the horizon, but the pattern itself can be used to generate a possible price objective.
This objective is obtained by taking the depth of the first trough and extrapolating that value above the level of price resistance that defined it. Putting this method to work suggests that $30.00 is a viable price objective.
The all-time high, which was established in March 2000, resides at $79.00. Given the size of the pattern that was just completed, it is not out of the question that IMMR shares meet and possibly exceed this level. Only time will tell.
I am bullish on the prospects of Immersion stock going forward, because a very large technical price pattern was completed in May, implying that much higher prices are on the horizon.
I will maintain this bullish view as long as the IMMR stock price continues to trade above the significant level of price resistance that defined the pattern.