WDC Stock Technical Analysis: The Next Move Is Based on This Pattern

WDC Stock
Credit:iStock.com/jejim

Western Digital Stock: These Diamonds Are Not Forever

I am focusing on Western Digital Corp (NASDAQ: WDC) stock because there is a technical price pattern currently in development on the stock chart, and the next move is predicated on the resolution of this pattern.

Before I delve into the pattern that is in development, let me point out that this is not my first time covering Western Digital. In July of last year, when this stock was trading at around $52.01, I outlined in a publication titled “Western Digital Corp: This Could Send WDC Stock Soaring” that a technical price pattern was just completed, and it was implying that higher stock prices were on the horizon. The implications suggested by the completed pattern did not disappoint because WDC appreciated smartly afterward, which is a testament to the value of this method of investment analysis.

For those who haven’t frequented my publications before, this method of investment analysis is called technical analysis and it is predicated on using historical data from a company’s stock chart in order to speculate what the future may bring. I have been using and applying this method to my investment strategies for nearly two decades, and it is my preferred method of analysis for the simple reason that when it is applied correctly, the results are extraordinary.

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The following Western Digital stock chart illustrates the technical price pattern currently in development.

Western Digital stock chart

Chart courtesy of StockCharts.com

The pattern that is highlighted on the chart is a diamond consolidation pattern. This pattern is created using a number of trend lines. This pattern begins its development as an expanding pattern, where two diverging trend lines define the pattern by connecting the respective peaks and troughs. The pattern then morphs into a contracting pattern, where two converging trend lines define the pattern by connecting the respective peaks and troughs.

Diamond consolidation patterns are special patterns because they have the ability to mark very important inflection points. They can act as either a continuation pattern suggesting that the embedded trend is set to continue or as a reversal pattern suggesting that the trend is set to change directions. The distinction between these two is based on the direction in which this pattern is resolved.

Exiting the diamond consolidation pattern in an upward direction would imply that it was a continuation pattern that was in development on the WDC stock chart while exiting the pattern in a downward direction would imply that it was a reversal pattern that was in development on the stock chart.

This diamond consolidation pattern is currently developing right on top of the 200-day moving average. The 200-day moving average is highlighted in red and it is created by averaging the stock’s closing price over the last 200 days and plotting that value on the company’s stock chart.

The 200-day moving average is a tool is used to determine whether an investment is in a bullish state or a bearish state. Distinguishing between these two states is done by looking at what side of the 200-day moving average the investment is trading on. Trading above the 200-day moving average suggests that the investment is in a bullish state and a bull market is in development, while trading below it suggests that the investment is in a bearish state and a bear market is in development.

WDC stock is currently trading above the 200-day moving average, which implies that a bull market is in development. The diamond consolidation pattern is developing right on top of this moving average and is using it as a level of price support. At this juncture, I have the inclination to believe that the odds favor a bullish resolution of this consolidation pattern, which, upon completion, would suggest that higher stock prices are on the horizon.

Analyst Take: 

There is a diamond consolidation pattern currently in development on the Western Digital stock chart, and its completion will determine whether the stock is set to advance or set to decline. This investment’s current stature above the 200-day moving average raises the odds that this pattern will resolve itself in a bullish manner, which would suggest that the trend towards higher stock prices is still in development, and set to continue.