TWOU Stock: Testing a New Level of Support
I am focusing on 2U Inc (NASDAQ:TWOU) stock to reiterate my bullish view that was first regenerated on April 3, 2017, when I published the report, “Textbook Breakout Suggests Only Upside for TWOU Stock.” In that report, I outlined key technical developments that suggested that the 2U stock price was set to appreciate. The stock—and my analysis—did not disappoint because the stock price did appreciate. But in the last few weeks, a pullback in price occurred and in the process, the price action has served to reinforce the bullish developments that initiated my bullish view in first place.
Before I continue, it is worth noting for anyone who hasn’t frequented any of my previous publications that my views on TWOU stock have been generated by analyzing the company’s stock chart. This form of investment analysis is known as technical analysis, and it is a very popular method used by traders. This method of analysis has become the cornerstone of my investment strategies because it is based on price and volume, which create the timely indications that my strategies require.
The price chart above illustrates that in late March of this year, TWOU stock completed a technical price pattern known as a “cup and handle” price pattern.
The following price chart illustrates the recent developments that are reinforcing my bullish view on 2U stock.
Chart courtesy of StockCharts.com
This bullish price pattern is created as a result of a stock reaching a significant level of price resistance. In this case, the price resistance resided at $39.50. The first time 2U shares reached this price point in August 2015, a significant sell-off quickly ensued, and in the span of six months, this investment lost 62% of its value.
The share price quickly rebounded, and by September 2016, 2U shares were once again testing this significant level of price resistance at $39.50, which in turn created the “cup” pattern. Once again, this level of resistance proved to be too much for the bulls to overcome, and a smaller sell-off ensued.
TWOU shares corrected by only 25% before the share price regained its footing and started to climb once again. The third time it approached the level of resistance at $39.50, it created the “handle.” Breaking above resistance completed the cup and handle pattern that is currently suggesting that higher stock prices are likely to follow.
After a quick pop to $46.35, TWOU shares began to correct, and they managed to find support right on the previous level of resistance that contained the stock price and created the cup and handle price pattern. Returning to test a previous level of price resistance from above is a very common occurrence.
I refer to this type of price action as a “backtest” because the stock price is returning to test a previous break above a very important level of price resistance. This price action serves to reinforce that the break above resistance was legitimate, while simultaneously substantiating that this previous level of price resistance is now a new level of price support.
This completed technical price pattern is within the context of much larger bullish backdrop, which is illustrated on the following 2U stock chart.
Chart courtesy of StockCharts.com
This bullish backdrop that is currently in effect has been created by bullish constructive price action and a bullish indication from a momentum indicator.
The completed cup and handle price pattern is within the context of bullish constructive price action. Bullish constructive price action consists of a two-wave structure that is an essential ingredient when a sustainable trend is being created.
The first wave of this two-wave structure is an impulse wave, and its function is to advance the price of the stock. This wave is highlighted in green on the price chart above.
The second wave of this two-wave structure is a consolidation wave, and its function is to set up the correct conditions for an advancing impulse wave to develop. This wave is highlighted in purple on the price chart above.
As you can see, the completed cup and handle price pattern was a type of consolidation wave, and now that this wave is complete, a new impulse wave is now set to develop.
This bullish view is being reinforced by the moving average convergence/divergence (MACD) indicator. This indicator is used to distinguish between bullish and bearish momentum. This indicator achieves this distinction by using signal-line crossings.
A bullish momentum indicator was generated in January of this year, which is suggesting that bullish momentum is influencing the predominant direction that the 2U share prices are heading in. This indicator was instrumental in suggesting that the cup and handle pattern was set to be completed. The MACD indicator is still in bullish alignment, suggesting that higher prices are still likely to follow, which reinforced the notion that an impulse wave is now set to develop.
Bottom Line on TWOU Stock
The recent price action on the TWOU stock chart, where 2U stock returned to backtest a previous level of resistance, is serving to reinforce the bullish view that was generated when the stock price breached this level of resistance in the first place.