TWOU Stock: More Upside for 2U Inc?
Bullish on TWOU Stock
2U Inc (NASDAQ:TWOU) stock is the focus of my attention. If you are not familiar with the name 2U, it is the leading provider of cloud-based software and services to non-profit colleges and universities. 2U stock’s share price is up 27% year-to-date and there’s plenty of evidence of further gains on the horizon.
If you have read any of my previous work, you may quickly realize that I use a systematic approach to formulate my investment strategies. This allows my strategies to stay objective, being based on chart patterns that consistently re-emerge on a stock’s chart. Those patterns can give insights into the future direction of a stock’s price. It is under this assumption that prices do not adjust instantly, but rather, they take time to reach a price objective.
Looking at the past performance of TWOU stock, its share price has enjoyed great growth over the years. If you managed to buy 2U shares at the stock’s low in May 2014, you would have enjoyed a 290% return by August 2015. What happened after that period, though, was not exactly fruitful for investors. A double top formed on September 22, 2015 and was confirmed on October 6, 2015 when shares closed below the neckline.
Chart courtesy of www.StockCharts.com
A double top is a reversal pattern that appears at the top of a trend. It is marked by two consecutive tops. The reversal is confirmed when shares close below the neckline.
After confirming the double top, TWOU stock began its descent into a bear market. Shares quickly fell below the 200-day moving average (MA). The 200-day MA is significant because investors use it as a dividing line between stocks that are in a bull market versus stocks in a bear market. Shares of TWOU stock attempted to rebound from the initial sell-off but ran into resistance right at the 200-day MA. The price action was clearly bearish and confirmed the downtrend. From peak to trough, shares of TWOU stock fell 62%—a considerable sum.
The current share performance has been equally astonishing. From the lows in February 2016, shares are up 130%. The good news is that the chart is pointing to further gains ahead.
Chart courtesy of www.StockCharts.com
In mid-April, shares closed above the 200-day MA. This was the first signal that suggested the trend had reversed from bearish to bullish.
And TWOU stock went on to paint a beautiful picture. In early July, we can see a cup-and-handle formation on the chart. This formation signifies a continuation pattern. The pattern is confirmed when prices close above the neckline. The beauty about this pattern is that it provides us with a price objective. The depth of the head is extrapolated above the neckline to produce a price target. The target for TWOU stock based on this pattern is $43.00.
This is a significant number, marking an all-time high. The old high that was marked with a double top will undoubtedly cause some stock resistance. If shares are able to break through the old high and reach $43.00, that may not be the last stop. New all-time highs have no upside resistance in share price. With no resistance, the proverbial sky is the limit for 2U stock.
The Bottom Line on TWOU Stock
If we understand where shares price have come from and we recognize the signals that foresaw the trend reversal, then it is only reasonable to use the same criteria to confirm a trend in the other direction. A good, systematic strategy involves discipline. If the charts change or patterns fail, investors must exit and move on.
Having said that, my outlook for TWOU stock is bullish until further notice.
