RDCM Stock: Keeping It Simple
I am writing about RADCOM Ltd. (NASDAQ:RDCM) stock because, yes, you guessed it, I like this company as a potential investment. The reason why I like this company is based on a multitude of indications. Rest assured that all of these indications are generated using the RDCM stock chart. Yes, that is correct; I use the price chart to generate my views on a potential investment. Sounds too simple, improbable, or even impossible? At first glance it does, but I have plenty of reasons to believe otherwise.
This simple, improbable, or just plain impossible method of investment analysis is based on the assumption that stock prices contain embedded trends. This assumes that stocks don’t react to fundamental data instantly, and instead take time to reach an optimal level of price. The assumption taken one step further states that historical price and volume data can be used to discern this path to an optimal level of price. Knowing which direction price is heading in is of extreme importance, and being on the right side of the trend is why we choose to invest in any stock in the first place.
I have taken an in-depth look at the RADCOM stock chart, and it contains factors I seek when generating an investment strategy. These factors include a defined level of support, so I can define my risk, and a setup pattern that will suggest which direction RDCM stock is heading in next. Sounds quite simple right? Perhaps it is, but it has taken me the better part of two decades to reach this level of comprehension.
The following price chart illustrates the long-term level of price support.
Chart courtesy of StockCharts.com
The price chart above contains a simple uptrend line. This line is created by connecting the lowest points on this price chart that has spanned a little over eight years. To repeat, this trend line line is over eight years in the making. If that’s not significant, I don’t know what is.
So now that we have gotten that out of the way, this significant trend line is what I am using to define my risk. As long as RADCOM is trading above it, I can only assume that the bullish trend, which began in 2008 in the depths of the financial crisis, is still intact. Therefore, higher prices are likely to follow.
This bullish trend also enables a poorly timed entry in an investment to be rectified with time. If, for some unforeseen circumstance, RADCOM stock closes below this trend line, I have all the reasons I need to exit the position. The main objective when entering an investment is to exit. This may come at a profit or at a small loss, if need be.
One indication is never really enough to initiate an investment strategy because it’s not very difficult to justify data by finding an indicator that is supporting a biased view. So as a result, I always require multitude of indications that can support a clear and objective investment view. The following stock chart illustrates the price pattern that is setting up the next directional move that RDCM shares are about to embark on.
Chart courtesy of StockCharts.com
RADCOM has spent the last seven months trading sideways, creating a consolidation wave. This wave has been bound by price support slightly above $16.00, and resistance at $22.00. The function of this wave is to unwind any extreme conditions that were created during the previous advance and set up the next directional wave that is set to follow. I refer to these directional waves as impulse waves, and they can come in the form of an advance or a decline.
The next direction RDCM stock will take will depend on the direction in which it breaks out of the consolidation wave that is currently in development. A break above $22.00 would suggest further gains, which is a view that is in line with the long-term uptrend line. A break below $16.00 would suggest a larger correction was set to ensue, and such an event would carry a number of bearish implications because this would also cause a break below the long-term uptrend line.
My inclination is tilted towards a bullish resolution of this price pattern, because price is currently trading above the uptrend line, and this in itself is a bullish indication.
These impulse waves are very short in nature, so capturing them is of the essence. This wave structure is quite constructive, and aside from suggesting the next direction price is heading in, it is quite useful in defining a target for the impulse wave that is set to follow.
This target is generated by assuming that the consolidation wave is acting like a midpoint. Therefore, the next wave to follow should mirror the impulse wave that preceded it. Applying this metric to the pattern above creates an initial price objective of $27.00. This target is of course contingent on RADCOM stock breaking out of the consolidation wave in a upward direction by closing above $22.00.
Bottom Line on RADCOM Stock
I like Radcom stock because it carries the necessary qualities to generate an investment strategy. These qualities include the ability to define risk and a way to create a possible price objective. These are made available by a defined level of price support and a setup pattern that will dictate the next direction price will take. Indications are currently supporting an advance, but in order to confirm this view, RDCM stock needs to close above $22.00.