WDAY Stock: Constructive Developments
I am providing an update on Workday Inc (NYSE:WDAY) stock because the price action that followed my previous publication has become constructive, and a resolution of this constructive price action will indicate which direction WDAY stock is heading in next.
My last update on Workday stock was provided on June 15, 2017, in a publication titled “This Is Why Weakness in Workday Stock Can Be Embraced.” In that report, I outlined technical developments on the WDAY stock chart that suggested a bullish view on this investment was warranted.
The following Workday stock chart illustrates the technical price pattern that was highlighted in that publication.
Chart courtesy of StockCharts.com
The completed technical price pattern that is highlighted on the WDAY stock chart is why I currently hold a bullish view on this investment.
This pattern is called a “cup and handle” pattern, which effectively describes the shape the pattern paints on the stock chart. This pattern contains two troughs, where the first is much larger than the second. This pattern is created as a result of a significant level of price resistance that thwarted attempts to move beyond it.
The first attempt at this level of price resistance caused the stock to sell off. This sell-off caused WDAY stock to lose 29.52% of its market value before the carnage had finally subsided. The second attempt at this level of price resistance caused another sell-off to ensue, but to a smaller degree, and the share price only managed to shed 12.81% in value before it was finally able to find its footing. It was on the third attempt that Workday stock finally breached this level of price resistance, via a breakout (highlighted on the stock chart), which completed the cup and handle pattern.
The completed cup and handle pattern is suggesting that higher Workday stock prices are likely and it is why I am bullish on this investment. This price pattern not only suggests that the stock price is set to move higher, but it can also be used to generate a potential price objective. This price objective is obtained by taking the depth of the cup and extrapolating that value above the significant level of price resistance. This produces a target of $119.00, which I am targeting on a preliminary basis.
The price action that followed the completed cup and handle price pattern was instrumental in confirming the bullish implications suggested by it. The pattern was confirmed in June of this year, when the stock price returned to test the significant level of resistance from above. This price action is referred to as a “backtest” and it is highlighted on the WDAY stock chart. This backtest serves to reaffirm that the break above resistance was legitimate, while simultaneously establishing the previous level that acted as resistance as a new level of price support.
After the completion of the backtest, the price action remained constructive. Constructive price action can be used to project where the stock price is heading next. This constructive price action is highlighted on the following Workday stock chart.
Chart courtesy of StockCharts.com
This WDAY stock chart has been highlighted in order to focus on the constructive price action. This price action consists of an alternating wave structure that is made up of impulse waves, which are highlighted in green, and consolidation waves, which are highlighted in purple. These waves in an alternating sequence create the necessary building blocks to create a sustainable trend.
An impulse wave serves to define the stage in a bullish trend where the stock price appreciates in a swift and linear motion. A consolidation wave serves to define the stage in a bullish trend where the stock price corrects. A stock price correction is necessary in order to alleviate the overbought conditions that were created during the impulse wave that preceded it. Once these conditions are alleviates, it sets up the framework so a new impulse wave can develop. These waves feed off each other, and this is why they allow a trend to remain stable and sustainable.
A confirmed close above $104.50 would suggest that the consolidation wave is complete and a new impulse wave is set to develop. This impulse wave would mark the first impulse wave to develop outside of the cup and handle pattern. This suggests that the $119.00 price point outlined by the cup and handle would be a suitable target to base an investment strategy around.
Bottom Line on Workday Stock
I am holding a bullish view on Workday stock because the stock price is trading above the technical price pattern that created this bullish view in the first place. The price action on the WDAY stock chart is constructive, and a sustained close above $104.50 would suggest that another price advance has begun.