RDCM Stock: Second Chances
I am focusing on RADCOM Ltd. (NASDAQ:RDCM) stock once again because there have been significant developments since I published my last report, “Radcom Is a Small-Cap Stock That Is Setting Up to Move,” on March 16, 2017. In that report, I outlined that a particular technical price pattern was in development on the Radcom stock chart. I explained that there were indications that favored a bullish resolution to that pattern. A bullish resolution would serve to suggest that RDCM stock was set to appreciate.
Before I run through the new development, I need to point out that my views on this investment are based on technical analysis. This method of analysis is based on the notion that historical price and volume data can be used to discern price trends and forecast future prices. This may sound like a silly notion, but I assure you that it is not; many of my previous publications can attest to the value of this method of investment analysis. I have been developing my skills in this method of analysis for almost two decades and have become proficient in analyzing a price chart.
The development since my last report has been bullish, and my suggestion that the technical price pattern would resolve itself in a bullish manner was correct. After an initial surge in price, RDCM shares have retraced much of their gains. This might seem concerning to some, but this price action is still within the context of a bull market, as the following RDCM stock chart illustrates.
Chart courtesy of StockCharts.com
The chart above is a textbook version of what bullish price action should look like. This bullish price action consists of a two-wave structure.
The first wave is an impulse wave, which is highlighted in green on the chart above, and this wave serves to advance the price of a stock in a linear motion.
The second wave is a consolidation wave, which is highlighted in purple on the chart above, and this wave serves to unwind any overbought conditions that were created during the impulse wave, and more importantly, it serves to set up the next advancing impulse wave.
This alternating wave structure is essential in creating a sustainable long-term trend.
This textbook bullish price action has been supported by a golden cross that was generated in August 2016. A golden cross is a bullish signal that is produced when the faster 50-day moving average (highlighted in blue) crosses above the slower 200-day moving average (highlighted in red). This signal is popular among traders because it serves to suggest that a bull market is in development. It is not uncommon for the trend to accelerate after this indicator is generated, as traders get on board.
A few days after my publication, Radcom stock exited the consolidation pattern to the upside, suggesting that a new impulse wave was set to develop and higher price were likely. After a brief pop in price, RDCM stock has now retraced much of its gains and found price support at an important level.
This important level of support is defined by the trend line that served as a level of price resistance as the consolidation pattern was in development. Returning to test a previous level of price resistance from above is referred to by traders as a “backtest” and this price action serves to reaffirm the notion that the break above resistance was legitimate.
This level of price support also coincides with the 200-day moving average. The 200-day moving average is the dividing line between stocks trading in a bull market and stocks trading in a bear market. Trading above this moving average is bullish, and trading below it is bearish. It is common for this level to act as a key level of price support, or resistance, as a result.
These two distinct indications currently coincide at one price point. This assembly of support serves to reinforce the notion that price support is especially strong at this level. If I were looking to create a low-risk trading strategy, this would be the opportune time.
Let’s not forget that this short-term pattern is within the context of a well-defined bullish trend. This trend is illustrated on the Radcom stock chart below.
Chart courtesy of StockCharts.com
The price chart above really speaks for itself. The easy-to-spot bullish trend that began at the conclusion of the financial crisis in 2008 is defined using a simple uptrend line. This uptrend line is created by connecting the valleys on the price chart. Using this trend line as a tool is just as easy as it was to create. As long as RDCM stock is trading above this uptrend line, I can only assume that higher prices are likely, and the bull market that began in 2008 is intact. This trend line is why I assumed the consolidation pattern was going to resolve itself in a bullish manner, and it is the reason why I continue to view Radcom stock in a bullish light.
Bottom Line on RADCOM Stock
I am bullish on Radcom stock because indications on the price chart continue to suggest that the path of least resistance is geared towards higher prices. The recent correction in RDCM stock has served to “backtest” the technical pattern that suggested higher prices were likely, and if I were looking for a second chance to apply an appropriate trading strategy, this would be it.