SMCI Stock: Anticipating a Bullish Outcome
Through all the malaise that characterized the first quarter of 2018, I maintained a bullish bias. I can attest that holding this view was not an easy task, and that—at the time—I even had my doubts.
The swings were violent in nature, and the market’s inability to gain any traction stoked fear and frustration.
I found it quite appropriate that, during the famous month of May—about which the old adage “sell in May and go away” was coined—my bullish bias was finally vindicated.
On May 17, The Russell 2000 pushed higher and created a new all-time high.
The Russell 2000 is the small-cap index, and the companies that make up this index are very speculative in nature. If this index is leading the market, it implies that the general health of the market is in check and that a bull market is still in development.
Since the small-cap companies are leading, it is only appropriate that I focus on one now: Super Micro Computer, Inc. (NASDAQ:SMCI).
The reason why I chose Super Micro Computer stock is that it is on the verge of completing a technical price pattern that will determine what this stock does next.
This technical price pattern is highlighted on the following SMCI stock chart.
Chart courtesy of StockCharts.com
The pattern highlighted on the above chart is a descending channel.
A descending channel is characterized by its price action, which contains a sequence of lower lows and lower highs. The price action is the quintessential characteristic that defines a bearish trend.
So, if you’re wondering, yes, this pattern on the SMCI stock chart is bearish by nature.
Connecting the peaks and troughs that were created by the sequence of lower lows and lower highs produces two downward-sloping trend lines. These trend lines are important because they define where price support and price resistance reside.
In order to complete the pattern and negate the bearish implications suggested by it, Super Micro Computer stock needs to break above price resistance. Until such an event unfolds, the stock prices will continue oscillating in between the trend lines.
The good news is that the price resistance outlined by this pattern is currently being tested.
If the SMCI stock price can break out of this pattern, it will set off a flurry of buying pressure. That’s because, not only will resistance be broken, but the next wave of the wave structure will be initiated.
This outcome is highlighted on the following stock chart.
Chart courtesy of StockCharts.com
This SMCI stock chart has been annotated in order to highlight the price action that has created a wave structure that has been responsible for sustaining a bullish trend in Super Micro Computer stock.
This wave structure consists of impulse waves and consolidation waves.
The waves highlighted in green are the impulse waves, and they define the period in a bullish trend when a stock stages a sustained move toward higher prices. These waves are advancing in nature and, as a result, investors are inclined to capture these waves.
The waves highlighted in purple are the consolidation waves, and they define the period in a bullish trend when the stock price corrects and refrains from advancing. These waves are corrective in nature and, therefore, if possible, investors would prefer to avoid these waves.
This does not mean that consolidation waves are not important. Quite the contrary; these waves create the conditions that are necessary for the next wave to follow.
The descending channel, which is currently in development, doubles as a consolidation wave. A break above resistance would imply that an advancing impulse wave is likely to follow.
The chance of such an event unfolding in the near future is high—and rising—because the moving average convergence/divergence (MACD) indicator is also on the verge of generating a bullish signal.
MACD is an influential momentum indicator that uses the crossing of a signal line to determine whether bullish or bearish momentum is influencing the price action in a stock.
A bullish momentum signal implies that the stock is geared toward higher prices, while a bearish momentum signal implies that the stock is geared toward lower prices.
This is very important information because a stock cannot sustain a move in either direction unless the applicable momentum is supporting it. That’s why every wave on the SMCI stock chart has coincided with this indicator.
A bullish MACD signal has correctly implied that an impulse wave was in development on the Super Micro Computer stock chart, while a bearish MACD signal has correctly implied that a consolidation was in development on the stock chart.
The signal lines that create a MACD signal are going to generate a bullish signal by months end if things stay the course. A bullish signal would strongly suggest that the consolidation wave is approaching completion and that an advancing impulse wave is likely to follow.
I am watching SMCI stock with bullish anticipation because I believe that Super Micro Computer stock is likely going to make a sustained move toward higher stock prices. My beliefs are centered around a number of technical indications that are on the verge of being generated, which will support that exact outcome.