XRX Stock: No Man’s Land
Xerox Corp (NYSE:XRX) has a long a defined history. Xerox created a name for itself by producing photo imaging and copy machines. I could swear that some of my co-workers at one time would have referred to a photocopy as a “Xerox.”
Regardless, XRX stock has come a long way since those early days, and the company’s business lines have diversified significantly as Xerox now generates revenues from multiple business segments.
I base my investment decisions on the price chart of the stocks I am analyzing, and this method is known as technical analysis. This method uses historical price data to discern trends and forecast future price movements. This method may seem obscene to many fundamentalists, but this method has served me well in keeping my strategies systematic.
I am watching Xerox stock with a keen eye because the stock chart is compelling and the dividend of 3.2% is an added bonus for holding a long position.
The following Xerox stock chart illustrates the trend line that first piqued my interest.
Chart courtesy of StockCharts.com
The uptrend that has developed is as clear as day, and is defined by the trend line (highlighted in blue). This line is created by connecting the troughs on a price chart. An uptrend is defined by higher highs and higher lows. It can easily be identified as the price moves from the lower left to the upper right. There should be no mistaking an uptrend from a downtrend. XRX stock will continue to trade with a bullish bias for as long as this trend line remains intact.
If this trend line is broken to the downside, this would have tremendous bearish implications for Xerox stock. This would mean the bull market that proceeded the financial crisis in 2008 has effectively ended, and that it would be prudent to step aside and perhaps assume a bearish position in XRX stock.
The indicator in the lower panel labeled as “MACD” can help shed some light on the situation at hand. Moving average convergence divergence (MACD) is a simple and effective trend-following momentum indicator. Signal line crossings are used to distinguish between bullish and bearish signals. The MACD signal is currently converging and a bullish cross is possible in the coming weeks.
In order for the bullish trend to continue, it is imperative that the MACD crosses in a bullish manner. This would effectively create the bullish tailwind needed for XRX stock to trend higher.
The following Xerox stock chart illustrates the constructive pattern that has developed above the uptrend line.
Chart courtesy of StockCharts.com
The pattern highlighted in purple is referred to as a diamond consolidation pattern. These patterns are particularly special because this pattern can serve as both a trend reversal indicator or a continuation of trend indicator. The difference between the two can only be concluded once the pattern is finally complete and the price breaks out in either an upward or downward direction.
The line highlighted in green is referred to as an impulse wave. This wave is $4.00 in length, and this price will be used to create a target price when the diamond consolidation pattern is complete. Waves have a tendency to mirror the prevailing wave before they enter into a consolidation. This rule of thumb is true for breakouts and breakdowns. This is why many patterns have such symmetry.
A breakdown would put the predominant trend in jeopardy, as the target price of Xerox stock would be around $5.00. This price level would effectively break the uptrend line. A breakout would target the 2014 high around $13.50, and this is the outcome that the bullish investors of XRX stock are favoring.
The Bottom Line on Xerox Stock
My bias on Xerox stock is bullish, and this view is based on the uptrend line that has been in place since 2009. If I were to initiate a position, I would wait for the pattern that has developed to complete. A breakout of the diamond consolidation would have tremendous impact on whether my current view of XRX stock will remain. A break below the uptrend line would effectively place me in the bearish camp and completely change my view on XRX stock.