The Next Move in Sodastream Stock Is Predicated on This Pattern

soda stockSODA Stock: Bullish Indications

I have been tracking Sodastream International Ltd (NASDAQ:SODA) stock since last summer, after certain developments piqued my interest and suggested that a bull market in SODA stock had begun. These developments ended up marking the exact turn in Sodastream stock, and those fortunate to catch this development were handsomely rewarded, as the stock is up 242% since then. Now there are new developments that are creating a constructive pattern that will dictate the next direction that SODA shares will take.

The developments and patterns that I am referring to are indicators that are generated using technical analysis. This method of analysis is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. As a result, my analysis begins and ends using the company’s price chart. The only factors that change are the scaling and the indicators that I employ.

The following Sodastream stock chart illustrates the development in early summer last year, which suggested that higher stock prices were likely.

Sodastream Stock chart

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Chart courtesy of StockCharts.com

After peaking in June 2013, SODA shares began to trade lower and a bearish trend soon developed. This bearish trend turned into a full-fledged bear market that erased 85% of the company’s market value.

This bear market was easily defined using a simple downtrend line, which was created by connecting the peaks on the price chart. As a tool, this downtrend is just as easy to use as it is to create. When the share price is below the trend, it is a bearish indication, and lower prices can be expected. When the share price is above this trend line, it indicates that the bearish trend has concluded.

In May 2016, this downtrend line met its demise, as the price was finally able to break above it. The pattern of lower highs and lower lows had finally concluded, and this indicated that the bear market had finally gone back into hibernation. It was at this point that the bull market in SODA stock was born, and an uptrend began to develop.

The moving average divergence/convergence (MACD) indicator in the lower panel of the above chart has been instrumental in confirming the predominant trend. MACD is a simple and effective trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum.

In November 2013, a bearish MACD cross was generated that indicated that bearish momentum was now propelling Sodastream stock and, as a result, the path of least resistance was geared toward lower prices. This indicator confirmed the view that lower prices were set to prevail, and many losses could have been avoided by implementing this indicator into a trading strategy.

In February 2016, a bullish cross was generated that indicated that bullish momentum had overwhelmed any bearish momentum and, as a result, the path of least resistance was now geared toward higher prices. This indicator correctly suggests that higher prices were likely, and a powerful bullish rally followed shortly afterwards.

As long as Sodastream shares are trading above the uptrend line, and a bullish MACD signal is still engaged, I can only assume that higher prices will prevail.

The following SODA stock chart illustrates the bullish price action that has defined this bullish advance.

Sodastream Stock chart

Chart courtesy of StockCharts.com

The price action above the uptrend line has been very constructive. Constructive price action consists of impulse waves that serve to advance the price, and consolidation waves that serve to alleviate overbought conditions and set up the next advancing impulse wave. The bullish advance in SODA shares has been constructed by using this wave structure, and this alternation between waves is what allows the trend to remain sustainable.

In May 2016, a golden cross was generated. A golden cross is a bullish signal that is produced when the faster 50-day moving average (highlighted in blue in the above chart) crosses above the slower 200-day moving average (highlighted in red). This signal is popular among the trading community because it is used to confirm that a bull market is in development. This signal was the second indication that suggested a new bull market was in the making.

The following Sodastream price chart illustrates the consolidation wave that is currently in development.

Sodastream price chart

Chart courtesy of StockCharts.com

The chart above illustrates that the current consolidation pattern is in the form of a symmetrical triangle. This pattern contains two converging trend lines and, as the pattern progresses, these converging trend lines cause momentum to be stored within the pattern. This momentum is finally released when the pattern is resolved and, as a result, triangles are particularly powerful price patterns.

The resolution of this symmetrical consolidation triangle will dictate the next direction that Sodastream stock will take. Exiting the pattern in an upward direction will suggest that higher prices are likely to follow, and exiting the consolidation pattern in a downward direction would suggest that a correction is set to ensue, and the uptrend line could be tested.

Bottom Line on Sodastream

I am bullish on Sodastream stock because is is trading above the uptrend line, and a bullish MACD cross is still is engaged. The uptrend line defines the bullish advance in SODA stock, and the bullish MACD indicator first suggested that a bull market was in development. The current resolution of the consolidation pattern will serve as a guide to the direction that SODA shares will take next.