P Stock: Awaiting Confirmation
I am actually getting tired of watching the markets gyrate in different directions on a day-to-day basis. Volatility remains high, and this is not a condition that is conducive to a strong market. However, I still remain in the camp that believes that higher index values will prevail. In response to my stance, I continue to look for investments that are geared toward a bullish outcome.
This report that I am about to embark upon is a little different than what my readers are mostly used to. I usually stick to stocks that are ready to make a move within the context of a bullish trend, but in this report, I am changing things up a little bit and focusing on an investment I believe is setting up to put in a tradeable bottom.
The investment I am referring to is Pandora Media Inc (NYSE:P) stock, and it is currently creating a technical price pattern, which is implying that a potential bottom is currently being forged.
This technical price pattern is highlighted on the following P stock chart:
Chart courtesy of StockCharts.com
The pattern highlighted on the Pandora stock chart is potentially a “saucer bottom.” That’s a technical price pattern that captures the slow progression of a stock transitioning from a bearish trend into a bullish one. This slow progression is why the pattern has a rounded bottom that resembles a saucer, hence the name.
The saucer bottom pattern will be completed when it breaks above a significant level of price resistance, which currently resides at $5.50. This significant level of price resistance was first established after Pandora stock gapped lower by 24.56% on November 3, 2017, following a disappointing earnings report, which was compounded by a weak outlook.
There have been numerous attempts to break above this significant level of price resistance, and thus far all attempts have been thwarted. When this level is finally breached, it which will confirm that the trend has reversed course and that higher prices will follow.
The gap that was created in November remains open, and it would likely get filled if the significant level of price resistance is ever broken.
I have the inclination to believe that a bullish scenario is set to play out in the not-too-distant future, because a particular technical indicator I follow is suggesting that perhaps the tide for Pandora stock is about to change.
This particular technical indicator is highlighted on the following Pandora stock chart:
Chart courtesy of StockCharts.com
The technical indicator I am referring to is the relative strength indicator (RSI). RSI is an indicator that is used to determine whether a stock is overbought or oversold. These extreme conditions are measured by using an oscillator that fluctuates between zero and 100. An RSI reading above 70 is overbought, while an RSI reading below 30 is oversold.
Once an indication becomes overbought or oversold, it can remain there for some time. A bearish signal is generated when the RSI crosses above 70 and then crosses back below it, while a bullish signal is generated when the RSI crosses below 30 and then crosses back above it. In each case, this signal suggests that the trend that preceded it has run its course and a new trend has begun. The P stock chart is a testament to this notion.
In March 2014, a bearish RSI signal was generated when the RSI oscillator crossed back below 70, suggesting that the bullish run that preceded it had come to an end and that a bearish trend toward lower prices was likely to follow. True to its nature, the bearish indicator generated by the RSI indicator was correct, and as such, lower P stock prices have prevailed.
It has taken four years for the RSI signal to reach 30, and after dipping briefly below it, it has crossed back above 30, creating a bullish signal. This bullish RSI signal is suggesting that the bearish trend that preceded it has run its course and that higher P stock prices are now likely to prevail.
This bullish RSI signal is implying that the significant level of price resistance which resided at $5.50 is set to be broken, completing the saucer bottom pattern. This confluence of indications will suggest that higher P stock prices are in development via a new bullish trend.
I believe that once Pandora stock breaks above a significant level of price resistance at $5.50, it will confirm my beliefs that a new bullish trend in P stock has begun.