WDC Stock: Not Surprised
Western Digital Corp (NASDAQ:WDC) stock is set to trade higher on Wednesday after the company preannounced that second-quarter revenue is going to come in above the levels that were previously expected.
As a result, the company has increased its forecast for second-quarter earnings. WDC stock added an additional 4.79% in after-hours trade after this bullish news was disseminated.
This news doesn’t come as total shock, because I have been bullish on WDC stock for some time. In my last report about Western Digital on October 26, 2016, I was gushing over how bullish the price action has been on the Western Digital stock chart and how I expected the price to continue to move higher. My analysis suggested that the bull market in WDC had only begun.
Western Digital stock was trading at $56.52 when that report was published, and on Tuesday in after-hours trade, WDC stock closed at $66.91. Quite an impressive run in a short amount of time.
I have been using price and volume data to discern trends and forecast future prices for over a decade, and I have enjoyed some success doing so. This style of analysis is known as technical analysis. It is not perfect, but it has been instrumental in giving me the ability to subjectively apply trading strategies to potential investments.
Technical analysis is the reason why I am bullish on Western Digital stock, and I will continue to be bullish as long as the WDC stock chart supports this view.
The following long-term Western Digital stock chart illustrates why I believe that a bull market has only begun.
Chart courtesy of StockCharts.com
The WDC stock chart above illustrates that the long-term level of support sits at $40.00. This level is highlighted with a blue horizontal trend line. This level served as resistance from 2009 to 2013, and was tested numerous times before it was finally broken. It is not uncommon that when a major level of resistance is finally broken, it becomes a level of support.
So when the price retreated from the highs that were generated in 2014, it is no surprise that the price was unable to fall below this level on sustained basis. A savvy investor would have anticipated this level of support and could have built a position as it was being tested.
The indicator in the lower panel of the above chart is known as the moving average convergence/divergence (MACD). MACD is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish momentum signals. This signal has only recently crossed in a bullish manner, confirming that a longer-term bull market has only just initiated.
The following Western Digital stock chart illustrates the bullish price action that followed the test of long-term support.
Chart courtesy of StockCharts.com
Shortly after a bottom was established in WDC stock, a bullish pattern started to emerge. There are two parallel lines that define this bullish trend. Such a trend is what traders refer to as an ascending channel. There two trend lines that define the upper and lower bounds. The share price oscillates between these two lines for as long as the trend permits.
In September 2016, WDC stock generated a golden cross. A golden cross is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. Traders use this signal to confirm that a bull market is on the horizon. This signal creates a bullish tailwind and, as a result, it is not uncommon for the trend to accelerate after this signal is generated.
Bottom Line on WDC Stock
I have been bullish on Western Digital stock because the price chart warranted this view. I will continue to be bullish until the WDC stock chart suggests otherwise. The earnings preannouncement will only add fuel to an already bullish trend.