Soda Stock: Patience Is Warranted
Sodastream International Ltd (NASDAQ:SODA) stock was a great turnaround story in 2016. SODA stock was finally able to gather its footing and produce a bullish run that returned 142% to investors and stunned many naysayers in the process. After such an impressive 2016, it is time to review that year to see if it can shed some light on what is to come.
Going into 2016, SodaStream stock lost 85% of its value from its peak, and the future of this company was coming into question because that was what the price of SODA stock was suggesting.
A great saying is “it’s always darkest before the dawn,” and this is a perfect way to explain the developments that followed as SodaStream stock sat at multi-year lows.
I have been following SODA stock for some time and, when the price began to appreciate, I too had my reservations, but that quickly changed as the price began to behave in a bullish manner. This bullish price action was a pleasant change from the bearish price action that dominated the trend over the past three years.
The following Sodastream stock chart illustrates where the bearish trend met its demise.
Chart courtesy of StockCharts.com
A downtrend had dominated SODA stock since June 2013. This downtrend line highlighted above is created by connecting the peaks on the price chart. A downtrend is defined by lower lows that are confirmed by lower highs. It can easily be identified as a price moves from the upper left of a chart to the lower right. This was a perfect textbook example of bearish price action.
In May 2016, this downtrend met its demise, as the price was finally able to close above it. The pattern of lower highs and lower lows had finally been terminated, and this indicated that the bear market had finally gone back into hibernation.
The rally that followed was both breathtaking and relentless; it is hard to believe that SODA stock started the year on a down note, registering a -28.5% return in the middle of February.
The following SodaStream stock chart illustrates the bullish price action that has supported this breathtaking and relentless run.
Chart courtesy of StockCharts.com
The price action of the lows in early 2016 was nothing short of bullish. This type of bullish price action is illustrated on the SODA stock chart above. Bullish price action constitutes impulse waves (highlighted in green) that took SodaStream stock to new heights, and consolidation waves (highlighted in purple) that served to both alleviate any overbought conditions and set up the new impulse wave.
Shortly after the first set of impulse waves were complete, SodaStream 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 was one of the first signals that confirmed that a new bull market was in the making, and it is not uncommon for a price to accelerate, as it did, after such a signal is generated.
The run that began off of the lows contained six impulse waves that were separated by five consolidation waves. The current impulse wave has been the longest in terms of dollar appreciation and time. If this bullish trend is set to continue, a consolidation wave could now be expected to develop.
At this juncture, if I were looking to get into SODA stock, I would wait for a constructive consolidation pattern to develop before doing so.
Bottom Line on Sodastream Stock
2017 will be a difficult year to match the performance that SODA stock experienced in 2016, but as long as the price remains constructive and the price action continues to be bullish, who is to say that SodaStream stock cannot have another incredible year?