SFLY Stock: A Powerful Pattern Is Complete
Investing is a very tricky game and many people fall into bad habits because they let their emotions get the better of them. Many seasoned investors will tell you that, when it comes to creating and deploying an investment strategy, there is no room for emotions.
I would go as far as to say that emotions are actually the root of all evil when it comes to investing because they cause people to make mistakes and deviate from their investment objectives.
In order to combat this dilemma and remove my emotions from my investment strategies, I identify the merits of an investment simply by analyzing the company’s stock chart. This may sound odd, but the less I know about a company, the less of an inclination I have to fall in love with it, which means that, when the time comes for exiting the position, it doesn’t feel as though I am ending a relationship.
Since I am human and have emotions, instead of a falling in love with companies, I have chosen to fall in love with particular price patterns. A pattern that I am particularly very fond of has just been completed on the Shutterfly, Inc. (NASDAQ:SFLY) stock chart. That pattern is exactly why I am currently focusing on Shutterfly stock.
The price pattern that I am fond of is highlighted on the following stock chart.
Chart courtesy of StockCharts.com
The price pattern highlighted on the SFLY stock chart is a symmetrical triangle.
Triangle patterns are created by price action that is characterized by a sequence of lower highs and higher lows. Identifying triangle patterns is as easy as applying two converging trend lines that connect the respective levels of lower highs and higher lows. These trend lines identify the pattern and define respective levels of price support and price resistance.
The convergence of space between support and resistance that develops as the pattern is created causes energy to build in the pattern, which will finally be released when either support or resistance is broken. This is why triangle patterns are particularly powerful patterns that produce powerful results. It’s also why I am particularly fond of them.
The pattern highlighted on the Shutterfly stock chart took seven years to develop, making it a very large triangle pattern. Large patterns are expected to produce equally large reactions. So it is not a surprise that, in the days after the triangle pattern was completed on January 12, the stock price gapped higher by 18% and has continued to appreciate.
I’d like to note that this price gap is quite significant and therefore applicable in creating an appropriate trading strategy.
The strategy I would propose would be a bullish one. I have the inclination to believe that much higher Shutterfly stock prices are on the horizon because this triangle pattern is just a piece of a much larger bullish trend.
This larger bullish trend is highlighted on the following stock chart.
Chart courtesy of StockCharts.com
This SFLY stock chart has been annotated in order to highlight constructive price action. Constructive price action is the process of creating a bullish trend and it consists of a wave structure containing impulse waves and consolidation waves.
The wave highlighted in green is an impulse wave and this wave defines the stage in a bullish trend when a stock sustains a move toward higher prices.
The wave highlighted in purple is a consolidation wave and it defines the stage in a bullish trend when the necessary conditions are created in order to set the stage for an impulse wave. Consolidation waves are corrective in nature. Therefore, a defining characteristic is that the stock refrains from advancing.
Impulse waves lead and then consolidation waves follow. Once the consolidation wave is complete, another impulse wave will follow. This is why this wave structure is responsible for creating and sustaining a trend.
The completed triangle pattern doubles as a consolidation wave, which means the completion of this wave suggests that an impulse wave is currently in development.
The development of this impulse wave is why I currently believe that much higher SFLY stock prices are on the horizon. The theory behind this wave structure is that the consolidation wave acts like a midpoint and, therefore, the developing impulse wave has a high likelihood to mirror the impulse wave that preceded it.
The linear method suggests that $80.00 is a possible price objective, while the log-based method suggests that $225.00 is a possible price objective.
Both of these price objectives are higher than the current SFLY stock price, and it is why I feel comfortable in saying that higher Shutterfly stock prices are on the horizon.
The price action on the Shutterfly stock chart suggests that a bullish stance on SFLY stock is warranted because the price action is suggesting that higher prices are still in development.