Splunk Stock Needs to Breach This Level in Order to Run

SPLK stock
Credit:iStock.com/phongphan5922

SPLK Stock: One Last Hurdle Remains

Splunk Inc (NASDAQ: SPLK) stock closed the trading day on Friday, August 25, up 8.48% on the heels of a better-than-expected earnings report. The company managed to beat on both the top and bottom lines, and this positive earnings report was the catalyst to send investors into a feeding frenzy for Splunk stock. This surge in SPLK stock has set the wheels in motion, where a significant level of price resistance is being put to the test once again.

To clarify, identifying levels of price resistance and using indications to generate a view on an investment is a method of investment analysis known as technical analysis. Technical analysis is predicated on the notion that historical price and volume data can be used forecast what the future may bring. I have been studying and applying this method to my investment strategies for nearly two decades for one simple reason: It works.

This is not my first foray into Splunk stock; I originally focused on this investment on November 29, 2016 in a publication titled “Splunk Inc: This Is Why SPLK Stock Can Rocket Higher.” In that publication, I outlined a key technical indicator that was swinging into bullish alignment, suggesting that this investment was setting the stage for a move to the upside. I am still waiting for the move to occur, and it seems as though the level of price resistance that is currently being tested will act as a trigger. It is all that is standing in the way of higher SPLK stock prices.

The following Splunk stock chart illustrates the significant level of price resistance that is currently being tested once again.

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Splunk stock chart

Chart courtesy of StockCharts.com

This SPLK stock illustrates a significant level of horizontal resistance that sits at $67.50. This level price of resistance was identified by simply connecting the peaks on the stock chart using a horizontal line.

This level of significant resistance first showed its face in November 2016, and every attempt to move beyond it has been thwarted. The number of times this level has been tested easily suggests that the price point at $67.50 is indeed significant and very important.

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I believe that once this level is breached, much higher stock prices can be expected to follow. From an initial perspective, once the stock price closes above $67.50, I expect a quick and unabated run towards $100.00. If you’re wondering how this objective was obtained, I simply took the depth of the price action below the significant level of resistance and extrapolated that value above it.

I continue to look for a break above resistance because a number of indications remain in bullish alignment.

The following stock chart illustrates the bullish indications that have created a bullish backdrop that supports the notion of higher SPLK stock prices.

SPLK price chart

Chart courtesy of StockCharts.com

This SPLK stock chart illustrates the indications that have created a bullish backdrop. This bullish backdrop is awaiting a catalyst so the share price can make a run towards higher prices.

An indication creating this bullish backdrop is a bullish moving average convergence/divergence (MACD) signal. MACD is a momentum indicator that distinguishes between bullish and bearish momentum using the crossing of a signal line. It is extremely difficult for an investment to stage an advance without bullish momentum. The reason for this is that bullish momentum creates the path of least resistance geared towards higher stock prices. The exact opposite can be said about bearish momentum.

In February of this year, a bullish MACD cross was generated, indicating that bullish momentum was now influencing the stock price. Six months later, this indication remains in bullish alignment, suggesting that the stock price is still geared towards higher stock prices.

The MACD indicator is and has been suggesting that the wave structure is about to change and that the consolidation wave that is in development is going to give way to an impulse wave.

An impulse wave serves to define the stage in a trend where the stock price stages a bullish advance, while a consolidation wave serves to define the stage in a trend where overbought conditions are unwound in order to set the stage for a new impulse wave to develop.

In order to suggest that a new impulse wave is in development, Splunk stock needs to leap over the last hurdle holding it back, which is the significant level of price resistance that sits at $67.50.

Analyst Take: 

Splunk stock is all set to make a bullish advance towards higher stock prices. In order to set this bullish train in motion, SPLK stock needs to close above a significant level of price resistance at $67.50. Once this level is breached, I fully expect higher stock prices to follow.