Look Out, Higher Western Digital Stock Prices Are in Development

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WDC Stock: This Exceptional Level of Performance Is Set to Continue

We’re only a few months into 2018 and already the trading environment has been nothing like 2017. The markets sold off in late January, and the catalyst was an increase in interest rates. In February, the prospects of a trade war once again acted as a catalyst for selling.

These events have spooked investors and, as a result, volatility remains high, which is a characteristic not seen in 2017.

I stated this in early February and I’ll say it again: I believe that the current market weakness that gripped the indices was a much-needed correction in a bullish trend, and it is only a matter of time before the markets regain their footing and higher prices prevail.

The notion I want to express is that, when volatility spikes like it has, there is a tendency for a change in leadership, and some of the sectors that led that latest leg of the bull market may not  be the same sectors pushing it higher this time around.

This is why I continue to push the notion that, when such events occur, it is imperative to be in investments that are behaving bullish and avoid those that are behaving poorly, because those poor investments may be in the grips of a pronounced correction.

With this in mind, I am focusing on Western Digital Corp (NASDAQ:WDC) stock because it is behaving exceptionally well in this volatile market. It is up 22.66% year-to-date, and it has just completed a technical price pattern that is suggesting that much higher WDC stock prices are on the horizon.

This completed technical price pattern is highlighted on the following Western Digital stock chart.

Chart courtesy of StockCharts.com

The completed technical price pattern highlighted on the WDC stock chart is a descending channel. That is a pattern characterized by bearish price action that contains an orderly series of lower highs and lower lows.

Connecting these respective levels of lower highs and lower lows creates two downward-sloping trend lines that capture the pattern. These trend lines not only capture the pattern, they define levels of price resistance and price support.

Descending channels are bearish patterns and, as long as the Western Digital stock price is contained within the channel, lower prices will prevail. Only when the stock prices break above price resistance or fall below price support will this notion no longer stand true.

On March 6, Western Digital stock broke above the trend line representing resistance. This price action negates the bearish implications implied by the descending channel, and it is currently suggesting that the WDC stock price is free to appreciate.

The completion of this pattern is magnified when it is viewed in the context of Western Digital stock’s predominantly bullish trend, which is highlighted on the following WDC stock chart.

Chart courtesy of StockCharts.com

This WDC stock chart has been annotated in order to highlight the wave structure that is responsible for creating and sustaining its bullish trend. This wave structure consists of impulse waves and consolidation waves.

The wave highlighted in green is an impulse wave, and this wave defines the stage in a bullish trend when a stock sustains a move toward higher prices.

The wave highlighted in purple is a consolidation wave, and it defines the stage in a bullish trend when a stock price refrains from advancing. This corrective price action is necessary because it creates the conditions required to sustain the development of an impulse wave.

Impulse waves lead and consolidation waves follow. The descending channel which was just completed doubles as a consolidation wave, and it implies that an advancing impulse wave is now in development and that, therefore, higher WDC stock prices are on the horizon.

This notion of higher prices is being supported by the moving average convergence/divergence (MACD) indicator, which has the propensity to correctly confirm which wave is currently in development.

MACD is a trend-following momentum indicator that determines whether bullish or bearish momentum is influencing the price action in a stock. Bullish momentum suggests that higher prices are likely to be in development, while bearish momentum suggests that lower prices are in development.

The MACD indicator is very inflectional because a stock cannot sustain a move in either direction unless the appropriate momentum is supporting it.

The price action on the Western Digital stock chart is a testament to this notion. In February 2016, a bullish MACD cross was generated, and higher stock prices via an impulse wave followed.  In May 2017, a bearish MACD cross was generated, and it correctly suggested that a consolidation wave was in development.

The completion of the consolidation wave has coincided with a bullish MACD cross, and these indications together reinforce the notion that higher WDC stock prices are now in development.

Analyst Take

I am bullish on Western Digital stock because a completed technical price pattern has coincided with a bullish momentum signal, suggesting that higher WDC stock prices are on the horizon.