Palo Alto Stock Is Breaking Out And These Are the Repercussions

Palo Alto Stock
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PANW Stock: A Substantial Move Towards Higher Prices Is Now in Development

From a technical standpoint, Palo Alto Networks Inc (NYSE:PANW) stock looks incredible. Since I am a technical analyst, this is really the only standpoint I need in order to decide whether PANW stock is compelling or not.

Don’t get me wrong, I understand the merits of fundamental analysis and I have been schooled in these methods, but my experience has taught me that it is very difficult to create investment strategies using fundamental analysis. Technical analysis, on the other hand, generates indications from price and volume data. These indications are timely and, therefore, perfectly suited for creating investment strategies.

The reason I am focusing on Palo Alto stock is that there are a number of indications on the PANW stock chart suggesting that a substantial move toward higher stock prices is now in development.

These developments are highlighted on the following Palo Alto stock chart.

Chart courtesy of StockCharts.com

There are two distinct coinciding indications on this PANW stock chart which are suggesting that higher Palo Alto stock prices are on the horizon.

The first indication is the constructive price action that is highlighted on the stock chart.

Constructive price action defines an alternating two-wave structure that is responsible for creating and sustaining a trend. The waves responsible for creating and sustaining a trend are impulse waves and consolidation waves.

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An impulse wave, which is highlighted in green, defines the period in a bullish trend in which the stock price stages an advance toward higher stock prices. This wave is characterized by its relentless move higher.

A consolidation wave, which is highlighted in purple, defines the stage in a bullish trend when the gains from the preceding impulse wave are digested in order to alleviate any overbought conditions that were created. This wave is characterized by corrective price action that sets up the next advancing impulse wave.

Palo Alto stock has just exited the consolidation wave in an upward direction by breaking above resistance. This breakout, which is highlighted on the stock chart, serves to suggest that the consolidation wave is complete and that, therefore, a new impulse wave is now in development.

The great thing about this wave structure is that, aside from suggesting that higher stock prices are on the horizon, it can also be used to create a potential price objective for the current impulse wave that is now in development.

The price objective I am looking for is created using the theory surrounding this wave structure. The theory states that impulse waves separated by consolidation waves tend to mirror each other in terms of size, which means that the consolidation wave acts as a midpoint. Applying this theory in practice produces a potential price objective of $265.00 for PANW stock.

The completion of the consolidation wave and the development of the impulse wave coincides with the second indication, which is also suggesting that higher PANW stock prices are now on the horizon.

The second indication is labeled “MACD.” in the lower panel of the Palo Alto stock chart. MACD is the acronym for moving average convergence/divergence, and this indicator is used to determine whether bullish or bearish momentum is influencing the stock price. In order to stage a bullish advance or a bearish decline, the appropriate momentum is needed, and it just so happens that this indicator coincides with the wave structure that is currently in development.

In December 2015, a bearish MACD signal was generated, indicating that bearish momentum was influencing the PANW stock price. This bearish momentum indication also confirmed the notion that lower prices were on the horizon. In a bullish trend, this indicates that a consolidation wave is in development.

As it stands right now, a bullish MACD cross is being generated, and it indicates that bullish momentum is once again influencing the Palo Alto stock price. This indication suggests that higher prices are on the horizon. In a bullish trend, it confirms that an impulse wave is now in development.

Analyst Take: 

Two distinct coinciding indications on the Palo Alto stock chart are suggesting that a bullish advance toward higher PANW stock prices is now set to develop. I will continue to believe that higher prices are likely until my price objective is met, or there are indications generated on the stock chart which suggest that another view is warranted.