Technical Analysis: NTES Stock Is Perfectly Aligned for Further Gains

netease stock analysis
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NTES Stock: Geared for Higher Prices

That low-volatility environment that characterized all of 2017 is long gone and, after the markets sold off in January, the markets have been characterized by high volatility, which has resulted in large gyrating moves. These large gyrating moves can be unnerving for investors, and rightfully so, because high volatility is usually associated with weak markets.

I, on the other hand, have yet to come across any glaring indications suggesting that the market is poised for anything but higher prices. Therefore, I continue to look for investments that are geared for higher prices.

I am currently focusing on NetEase Inc (ADR) (NASDAQ:NTES) stock because the price action has been pristine and, as a result, a number of technical developments are suggesting that NetEase stock is now poised to make another run toward higher NTES stock prices.

This pristine price action is highlighted on the following NetEase stock chart.

Chart courtesy of StockCharts.com

The price action has created a number of technical developments on this NetEase price chart, so I will cover them all in chronological order.

On November 6, 2017, NetEase stock gapped higher. A price gap is when the stock price opens higher than the previous day’s close, leaving a sizable gap on the price chart. Gaps have many meanings, but one thing that remains the same is that, on average, gaps have a propensity to get filled.

This gap was the beginning of a move that ran into mid-December, when the stock price finally peaked at $377.11. After this peak was forged, NetEase stock started to trend lower. Like all bearish trends that came before it, this trend was characterized by a sequence containing a series of lower lows and lower highs. Connecting the peaks created by the lower highs created a downtrend line that defined the bearish trend.

In early February, the price action underneath the downtrend line started to carve out a double bottom pattern. A double bottom pattern is a reversal pattern that contains two troughs of roughly equal size that are separated by a peak in between. The pattern is completed when the stock price closes above the peak that separated the two bottoms, suggesting that a trend reversal has been initiated and higher prices are likely to prevail.

On March 2, while the second trough was being established, the price gap that was created in November was finally filled, and a low was established. Only after this gap was filled did NTES stock finally gather enough strength to break above the downtrend line, implying that the bearish trend that began in mid-December had finally met its demise. A few short days later, the double bottom pattern was also completed when NTES stock closed above the peak that separated the two bottoms.

All these completed patterns are suggesting one thing, that the trend is now geared toward higher NTES stock prices. This fits in well within the context of this investment’s predominant long-term trend.

The predominant long-term trend is highlighted on the following NetEase stock chart.

Chart courtesy of StockCharts.com

This NTES stock chart illustrates the quintessential characteristic that defines all bullish trends, which is price action consisting of higher highs and higher lows. The sequence of higher lows was used to create the uptrend line, which is highlighted in blue.

The uptrend line defines the bullish trend in NTES stock and it also acts like a dividing line that separates this investment’s current bullish trend from a potential bearish one.

This uptrend line, which has been in effect since December 2012, has been tested on numerous occasions. Each and every time, the stock price has smartly bounced off the uptrend line. This uptrend line is very significant, and the sheer number of times it was tested is why it is almost impossible to refute this notion.

If the stock price were to ever fall below this uptrend line, I would have all the reason to believe that the bullish trend in NetEase stock had finally met its demise and that lower prices were likely to prevail.

Analyst Take

I am bullish on NetEase stock because numerous technical indications are currently implying that this stock is poised to make a move toward higher prices. I will maintain this bullish view as long as NTES stock continues to trade north of its uptrend line.