The Trend in AMBA Stock Is Bullish Once Again

AMBA Stock: Bullish Trend ReversalAMBA Stock: Bullish Trend Reversal

Quite a bit has changed in the last few weeks since my last publication on Ambarella Inc (NASDAQ:AMBA) stock.

On January 20, 2017, my report titled “Ambarella Inc: AMBA Stock Can Regain Its Footing Here” was published, and it outlined the situation that Ambarella stock had reached an important inflection point. This inflection marked a level where AMBA stock needed to stage an advance in order to maintain the notion that a bull market began in early 2016.

Three weeks have gone by since then, and Ambarella stock has not only held that technical level, but it has also managed to complete a technical pattern that is now suggesting that higher AMBA stock prices are a likely endeavor. This is exciting news because this indication suggests that a new bullish trend has begun, and catching it off of these levels could prove to be an incredible opportunity for investors.

The following stock chart illustrates the tool that suggested to me that Ambarella stock was approaching a key inflection point.

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Chart courtesy of StockCharts.com

In every bull market, there are pullbacks from a primary trend. These pullbacks are not a random occurrence, and most often they occur in order to alleviate overbought conditions that were created as the price of the stock rose.

Traders use Fibonacci retracement numbers as a tool to identify where these pullbacks will conclude. The theory behind these numbers is that, when a stock completes a primary advance within a bull market, it will pull back from this primary trend, and find potential support when the price retraces approximately 50%–62% of the advance.

This research tool has become so popular among traders that they have coined the term “trading in the box” to describe this 50%–62% pullback. A savvy trader would anticipate this level and exit any respective short positions and instead enter an applicable long position.

When Ambarella stock traded into the box, I pointed out in my previous publication that, if a bullish trend is going to develop, this is where AMBA stock is going to find support. This is exactly what has occurred, and a trading rally has since ensued.

The following stock chart illustrates the technical pattern that is suggesting higher Ambarella stock prices.

ambara

Chart courtesy of StockCharts.com

The focus of the AMBA stock chart above is the consolidation wave, but before I delve too deeply into the details surrounding this wave, I need to clarify something. Healthy bullish trend action consists of impulse waves that advance a price, and consolidation waves that alleviate overbought conditions and set up the next impulse wave pattern.

The consolidation wave that is highlighted in the chart above—which was a focus item in my previous publication about AMBA stock—has just been completed. The completion of this wave was identified when Ambarella stock exited the pattern to the upside, via a breakout. This price action suggests that a new advancing impulse wave is now in development.

The theory behind the wave structure is that impulse waves that are separated by consolidation waves have a tendency to mirror each other in terms of length. Applying this theory to the AMBA stock chart above produces an initial potential price objective of $90.00, which represents a considerable gain from current levels.

The following Ambarella stock chart illustrates that the bullish signals are continuing to mount, supporting the notion of higher prices.

ambara1

Chart courtesy of StockCharts.com

The focus on the AMBA stock chart above is the moving average convergence/divergence (MACD) indicator in the lower panel. This indicator is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish momentum.

This indicator has had a phenomenal track record of confirming both bullish and bearish trends with great precision. In February 2016, a bullish MACD cross effectively confirmed that a bottom was in place for AMBA stock. And in October 2016, a bearish MACD cross confirmed that a top had been formed.

This indicator is now converging and bullish cross can generate in the weeks to come. The bounce that occurred off the key level of support that is highlighted above suggests that price are set to trend higher. Higher AMBA stock prices significantly increase the odds that a bullish cross will occur.

Bottom Line on Ambarella Stock

I am bullish on Ambarella stock once again, and this view is supported by all of the bullish indications on the AMBA price chart. These bullish indications are all suggesting that a new bullish trend toward much higher prices has just begun.