TXT Stock: Powerful Price Pattern
Today’s theme is “excitement about stock charts,” because I have found another price chart where a compelling technical price pattern is in development.
The company in question that is generating this price pattern is Textron Inc. (NYSE:TXT). The reason why this technical price pattern is exciting is that, once the pattern is resolved, a directional move in Textron stock is expected to follow. I am particularly enamored with this price pattern because an appropriate investment strategy can effectively capture this expected move in TXT stock.
This price pattern, and its significance, is contained in the body of knowledge known as technical analysis. This method of investment analysis is predicated on using historical price and volume data to project the future direction of the stock price. I have been studying and applying this method of investment analysis for nearly two decades. I have yet to find anything that instills as much discipline and timeliness into my investment strategies.
The price pattern in question is a symmetrical triangle. This pattern is created by connecting the respective peaks and troughs that have developed on the Textron stock chart, using two converging trend lines. These two converging trend lines represent support and resistance.
The following Textron stock chart illustrates the exciting technical price pattern that is my focus.
Chart courtesy of StockCharts.com
What sets triangle patterns apart from all other patterns is that, while this pattern is in development, momentum is built and stored within it. This stored momentum is finally released when the stock price breaks above resistance or below support. For this reason, triangles are particularity powerful price patterns, and many of my investment strategies are set up to exploit this kind of price pattern.
The size and scope of this price pattern directly relates to the reaction that could be expected once this price pattern is finally resolved. This symmetrical triangle has been in development since the beginning of January 2017, after the share price peaked at $50.91. This triangle pattern is currently in its sixth month of development.
The contraction of the range between support and resistance depicts a battle between bullish and bearish investors trying to get a foothold on the next direction that the stock price is set to take. A victor will be crowned once this pattern is resolved. Once the pattern is finally completed, it will indicate that the range-bound trading has finally concluded, and that the share price is set to make a move.
This technical price pattern is actually a significant piece of a larger wave structure, which is illustrated on the following Textron stock chart.
Chart courtesy of StockCharts.com
The symmetrical triangle is a consolidation wave within a two-wave structure that constitutes constructive price action. This wave structure creates the necessary conditions that allow a stable and sustainable trend to develop on the TXT stock chart.
The first wave, highlighted in green, is an impulse wave. This wave defines the advancement of the price, and it usually occurs in a linear motion over a short period of time. The second wave, highlighted in purple, is a consolidation wave. This wave serves to unwind any overbought conditions that were created in the advance, therefore creating the necessary conditions for a new impulse wave to develop.
I am inclined to believe that the consolidation wave that is currently in development will resolve itself in a bullish manner by exiting the symmetrical triangle in an upward direction. This inclination is based on the fact that the current consolidation wave is developing above the 200-day moving average. The 200-day moving average is used to separate healthy investments trading in bull markets from unhealthy investments trading in bear markets.
The initial impulse wave began its development after the 200-day moving average was tested in October 2016, and TXT stock continues to trade above it. A bullish resolution of the symmetrical triangle pattern would suggest that a new advancing impulse wave is set to develop.
Aside from suggesting the next direction that the price is set to take, this wave structure can be used to generate a potential price objective. Obtaining this objective is as simple as assuming that the consolidation wave in development is acting as a midpoint between two impulse waves. As a result, the upcoming impulse wave should mirror the one that preceded it. Applying this theorem to the price chart above creates a potential price objective of $59.00.
Bottom Line on Textron Stock
Textron stock is setting up a technical price pattern that, upon completion, will suggest the predominant direction that TXT stock is heading in next. This technical price pattern is part of a much larger bullish trend, which has me believing that this pattern will resolve itself in a bullish manner, putting the bullish price objective of $59.00 into play.