SODA Stock: Bulls and Bears Battle
When I first looked at Sodastream International Ltd (NASDAQ:SODA) stock, I had mixed emotions. These emotions stemmed from the mixed signals that I received when I looked at the SODA stock chart from different time frames. The short-term charts were bullish and I was excited by my findings, but when I took a look at the long-term chart, my excitement quickly fizzled out, and a slight sadness came over me.
It’s quite comical that I am actually describing my emotions when it comes to investing, because I try my best to remove all emotional biases when I trade. This is why I am such a proponent of technical analysis. This style of investing is instrumental in keeping my strategies systematic. In essence, it is supposed to keep my emotions absent from my strategies and, in a constructive way, it has. My view on a particular investment must match the signals and trends that are generated from the price charts.
I currently hold a neutral bias on SODA stock, as the price charts are conflicting. The long-term chart and the short-term chart offer different views, and I will outline the necessary events that I require to swing my bias.
The following SodaStream stock chart illustrates what I originally deemed a “sinister” chart.
Chart courtesy of StockCharts.com
I referred to the chart above as “sinister” because it completely changed my whole outlook on SODA stock. This SodaStream stock chart contains a bearish double top. A double top is a reversal pattern that appears at the end of an uptrend. It is marked by two consecutive tops. The reversal is confirmed when shares close below the trough that separates these two tops. This level acted as previous support, but it is now marked as resistance.
A double top pattern can be used to construct a price target. Unfortunately, in this case, the target price is negative, leaving a target price of $0.00 for SodaStream stock. It is not the price target that I identified as “sinister,” but rather the price action.
When a pattern is complete, it is not uncommon for a stock to trade back to a previous level that stood as support and test it from the bottom to reaffirm that indeed it has become resistance. After such a test, the trend resumes in the opposite direction and, in this case, it would be to the downside toward that dreaded price target.
The news is not all bad, because technical analysis is not perfect, and patterns fail all the time. In order for this sinister-looking price action and dreaded pattern to fail, the level marked as resistance needs to be broken to the upside.
The following SodaStream stock chart illustrates the rise in price that tested resistance.
Chart courtesy of StockCharts.com
The SODA stock chart above is bullish, and this view is reinforced by the price action and the moving average signal.
The price action off of the February lows can only be seen as bullish. Impulse waves (highlighted in green) and consolidation waves (highlighted in purple) continue to follow each other as the price continues to rise. This is the definition of a bullish pattern, as higher highs and higher lows encompass the trend, and it resembles a staircase moving from the lower left to the upper right.
In May 2016, SODA stock generated a golden cross. A golden cross is a bullish signal that is produced when a faster 50-day moving average (highlighted in blue) crosses above a slower 200-day moving average (highlighted in red). This signal is used to confirm that a bull market is on the horizon. I have found it wise never to trade against this signal.
These signals leave the door open that resistance at $31.00 can once again be tested, and possibly be broken on the attempt. A break above this price point would completely destroy the sinister outlook given by the long-term chart, and it would revive a longstanding bullish run in SodaStream stock.
The Bottom Line on SodaStream Stock
I am neutral on SodaStream stock, as the short-term action is currently negating the long-term bearish picture. I would wait until resistance is broken at $31.00—or a bearish setup pattern emerges—before I change my bias on SODA stock.