SHOP Stock: Anticipating Much Higher Prices
The stock market continues to make its ascent toward higher valuations and I have yet to come across any indication that is suggesting that these exceptional moves are on the verge of ending anytime soon. In fact, many of the stocks I currently cover are breaking out, implying that more gains can be expected.
I am focusing on Shopify Inc (NYSE:SHOP) stock because it just happens to be one of the stocks I cover that is currently breaking out, which is implying that higher Shopify stock prices are on the horizon.
Breaking out is a technical term implying that a price pattern has just been completed and, as a result, one can expect the ramifications suggested by the pattern to play out.
The technical price pattern that was just completed is highlighted on the following SHOP stock chart.
Chart courtesy of StockCharts.com
The pattern highlighted on the SHOP stock chart is a symmetrical triangle. These patterns are created when the price action is characterized by a sequence containing a series of lower highs and higher lows.
Identifying and capturing these patterns is accomplished by using two trend lines, which were created by connecting the sequence of lower highs and higher lows. These trend lines are converging in nature, where the upper trend line represents price resistance and the lower trend line represents price support. This pattern is finally resolved when the stock price either breaks above resistance or falls below support.
These patterns are particularly exciting because, as the pattern develops, the converging trendlines cause a contraction of space between price support and price resistance. This causes energy to build within the triangle, which will be released when the pattern is finally resolved.
In early January, the triangle pattern was resolved in a bullish manner when Shopify stock closed above resistance. This development suggested that higher Shopify stock prices are on the horizon.
This notion of higher prices is being reinforced by the moving average convergence/divergence (MACD) indicator, which just generated a bullish signal. MACD is a momentum indicator that uses the crossing of a signal line to determine whether bullish or bearish momentum is influencing the trading action in a stock. Bullish momentum supports the notion of higher stock prices, while bearish momentum supports the notion of lower prices.
The bullish MACD cross that was generated in January implies that bullish momentum is influencing the trading action in SHOP stock, creating a path of least resistance geared toward higher prices.
The suggestion of higher stock prices is in line with the predominant trend, which is highlighted on the following SHOP stock chart.
Chart courtesy of StockCharts.com
This Shopify stock chart clearly shows that the dominant trend is bullish. it contains the quintessential characteristic that defines all bullish trends, which is a stair-step pattern containing a series of higher highs and higher lows. This stair-step pattern is responsible for creating and sustaining the move toward higher SHOP stock prices.
Capturing this bullish move was easily accomplished using a simple uptrend line, which was created by connecting the series of higher lows that characterized this bullish trend. The uptrend line functions as a level of price support, and every time the stock price has tested this level, buyers have been eager to jump in and support it. The number of points of contact over the past two years is a testament to the significance that this uptrend line carries.
It is also significant that the uptrend line has been supported by, and coincides with, the 200-day moving average. The 200-day moving average is a metric created by averaging the stock closing prices over the last 200 days and plotting that value on the stock chart.
This metric acts as a dividing line used to distinguish bullish investments from bearish ones. Distinguishing between these two polar opposites is determined by which side of the 200-day moving average the investment is trading on. A stock trading above the 200-day moving average is bullish, while one trading below it is bearish.
In June 2016, Shopify stock broke above the 200-day moving average and it has been trading above it ever since.
As long as Shopify stock is trading above both the uptrend line and the 200-day moving average I can only presume that the predominant bullish trend is still intact and, therefore, higher stock prices will prevail.
The completion of a technical price pattern on the Shopify stock chart suggests that a move toward higher prices is now in development. This view of higher price is being supported by a number of indications and metrics. As long the SHOP stock chart supports a bullish view, I will maintain my bullish stance on this investment.