These Signals Are Fueling the Rise in SOHU Stock

Sohu Stock
Credit:iStock.com/ipopba

SOHU Stock: A Stock Chart is Worth a Thousand Words

Sohu.com Inc (NASDAQ: SOHU) is a Chinese Internet company that has divisions encompassing media, gaming, and mobile apps. It’s no secret that I am completely ecstatic about Chinese Internet stocks, so no one should be the least bit surprised that I am focusing on one such investment again, in Sohu.com stock. 

This sector has been on fire this year, and is being led higher by Alibaba Group Holding Ltd (NYSE: BABA). I was fortunate enough to spot the move toward higher prices early on, and the outstanding rally in this sector continues to surprise to the upside.

I was attracted to this sector because the chart patterns and indications were compelling, and it is the same reason why SOHU stock is the topic de jour. The indications on stock chart have been pristine and easy to discern, which is a characteristic that one looks for in an investment. My focus here is to outline the indications that have supported the advance in this investment. Focusing on these indications will shed some light on when to expect another advance in this investment.

The following Sohu.com stock chart illustrates the indicators that have been supporting a price advance.

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Sohu stock chart

Chart courtesy of StockCharts.com

First and foremost, this SOHU stock chart illustrates that the rally toward higher prices that began last late year contains the quintessential ingredient that sustains all bull markets, which is a series of higher highs and higher lows.

The stair-step pattern that it creates is known as constructive price action, and it consists of two distinct waves: impulse waves and consolidation waves.

The impulse waves, which are highlighted in green on the chart, define the stage in a bullish advance when the stock price appreciates. The wave is characterized by brief and explosive moves to the upside.

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The consolidation waves, which are highlighted in purple, define the stage in a bullish advance when gains from the previous impulse wave are digested. This wave is characterized by its counter-trend price action, which serves to unwind any overbought conditions that were created during the previous impulse wave. Unwinding an overbought condition in SOHU stock sets the stage for a new impulse wave to develop.

These waves sustain each other and therefore, in an alternating wave structure, these waves create the necessary pillars of support that create a bullish trend.

I focus much of my attention on consolidation waves because this kind of wave is the precursor to an advance. Once the SOHU stock price exits this wave in an upward direction, a new impulse is expected to follow. It is not always easy to discern exactly when an impulse wave is set to develop, so—aside from using the price action—I have come to rely on a very influential momentum indicator.

This indicator is located in the lower panel of the chart, and it is labeled “MACD.” That is an acronym for moving average convergence/divergence, and it is a simple and effective momentum indicator that uses signal-line crossings in order to distinguish between bullish and bearish momentum.

A stock cannot sustain an advance without momentum, and the same can be said about a decline. This indicator has been instrumental in confirming which wave is in development.

In November 2016, May 2017, and July 2017, a bullish MACD cross was generated, indicating that bullish momentum was influencing the trading action in SOHU stock. This bullish momentum creates a path of least resistance that is geared toward higher prices. While this indicator is in bullish alignment, impulse waves have developed on the stock chart.

Similarly, in January 2017, June 2017, and August 2017, a bearish MACD cross was generated, indicating that bearish momentum was influencing the trading action in the stock. This bearish momentum created a path of least resistance that was geared toward lower prices. While this indicator was in bearish alignment, a consolidation wave developed on the SOHU stock chart.

Currently, the bearish MACD cross is confirming that a consolidation wave is in development. In order to suggest that higher prices are on the horizon, a new impulse wave is needed. This would require the stock to exit the consolidation wave in an upward direction, which would also coincide with a bullish MACD cross. Patience is warranted until such indications show their faces on the SOHU stock chart.

Analyst Take:

Indications that have been generated on the  Sohu.com stock chart suggest that this investment is best viewed in a bullish light. The best course of action is to wait until these indications are in bullish alignment before assuming that higher SOHU stock prices are on the horizon.