VMware Stock Is Targeting This Bullish Price Point

VMW StockVMW Stock: Abides by Rules

I have been bullish on VMware, Inc. (NYSE:VMW) stock ever since I first laid eyes on it in July 2016, when it was trading at $72.31. I published a report that outlined my bullish findings, and it is safe to say that VMware stock has a special place in my heart.

The reasons for this admiration are just, I must assure you, and are based on the way VMW stock trades.

I base my opinions on and create my trading strategies using technical analysis. This method of investment analysis is based on the notion that stock prices trend, and therefore, historical price and volume data can be used to forecast future prices. My admiration for VMW stock stems from its ability to abide by the rules set out by this method of analysis, and as result, it is an excellent candidate to create an investment strategy around.

The bullish indications began in July 2016, and they have continued to mount, suggesting that higher VMware stock prices can be expected.

The following VMware stock chart illustrates the price pattern that first generated my bullish view.

VMW stock

Chart courtesy of StockCharts.com

I have found that price patterns are the single most power indicator, and as a result, I spend quite a bit of my time looking for investments that contain compelling price patterns.

When I came across the “head and shoulders” pattern that had been painted on the VMware stock chart, I knew I had a winner. This reversal pattern consists of three troughs, and a neckline. The middle trough, the head, is the largest, and first and third troughs, the shoulders, are usually of equal size. The neckline is a resistance level that is formed by connecting the reaction highs. The reversal pattern is confirmed when price closes above this level of resistance.

The completion of this head and shoulders reversal pattern was done with great grace, as price gapped up above the neckline. This price action is very significant because this type of “breakaway” gap rarely gets filled and almost always signals that a new trend has begun.

This confluence of indicators was enough to suggest that a bottom had formed and that higher prices were on the horizon.

The following VMW stock chart illustrates the indicator that confirmed the advance, and the trend line that has supported price.

vmware stock chart

Chart courtesy of StockCharts.com

In June 2016, a golden cross was generated. This is a bullish indicator that is produced when the faster 50-day moving average (highlighted in blue) crosses above the slower 200-day moving average (highlighted in red). This indicator is used to confirm that a bull market is in development, and is not uncommon for price to accelerate after this indicator is generated. The golden cross helped create the necessary tailwinds to stage an advance that ended up completing the head and shoulders reversal pattern.

The advance of the February 2016 lows has been nothing short of spectacular. This spectacular run has been supported by a bullish uptrend line. This trend line is created by connecting the troughs on the price chart. As long as VMware stock is above this trend line, I can only assume that higher prices will prevail. Falling below this trend line would suggest that a correction was set to ensue, and as a result, I would set my risk parameters around this trend line.

The following VMW stock chart illustrates the level that I believe price is currently targeting.

VMW stock chart

Chart courtesy of StockCharts.com

On the chart above, you will notice the lower panel label “MACD.” The moving average convergence/divergence (MACD) indicator is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish momentum. A bullish cross was generated in August 2016, which suggests that bullish momentum is propelling price, and this serves to suggest that the path of least resistance is geared towards higher prices.

The bullish MACD indicator also served to reinforce the bullish view that was first suggested by the head and shoulders reversal pattern. This indicator is still engaged, and it continues to indicate that higher prices are likely.

The chart above illustrates that a trend line that is labeled as “resistance” has contained price since VMW stock went public. It is my belief that this trend line will be tested in the not-too-distant future. Every bullish MACD signal served to propel price until it hit this level, and I do not see any reason why this time will be different. At the moment, this level currently sits just south of $110.00.

Bottom Line on VMware Stock

I have been bullish on this stock since a bottom pattern first suggested that such a view was warranted in July 2016. Since that date, the bullish indicators have continued to mount, suggesting that higher VMW stock are on the horizon. Since my bullish view was generated using indicators that were generated using the price chart, I will continue to be bullish until the indicators suggest that another view is warranted.