YY Stock Is a Picture-Perfect Example of Bullish Price Action
It’s safe to say that I am particularly excited about Chinese Internet stocks, because this subsector is on fire a the moment. So, when I came across YY Inc (ADR) (NASDAQ:YY), I was intrigued to say the least.
The company’s fundamentals are quite compelling, and they are growing at an exponential rate. The valuation is far from being stretched, and these metrics would excite value investors and growth investors alike.
Fundamentals are a sound way to base a view on a potential investment, but my experience in this business has led me to another style of investment analysis known as technical analysis. This method of investment analysis is predicated on analyzing different metrics on a company’s stock chart in order to determine whether an investment is compelling.
The YY stock chart is an exemplary example of a bullish price chart. I can’t even begin to express how excited I am to present my findings.
The following YY Stock chart illustrates the bullish price action that has consumed this investment in 2017.
Chart courtesy of StockCharts.com
This YY stock chart illustrates that 2017 has been a stellar year for performance; this company’s share price is currently up 70.12% year-to-date. This performance displays the quintessential characteristic that defines all bullish trends, which is a series of higher highs and higher lows. This characteristic creates a stock chart that began in the lower left and has progressively moved to the upper right. This is essentially the price action that every investor is looking for.
In April 2017, the faster 50-day moving average crossed above the slower 200-day moving average, creating a golden cross. A golden cross is an indicator which suggests that a bull market is in development. This popular indicator didn’t disappoint; shortly after the indicator was generated, the YY stock price began to accelerate, tacking on significant gains in short order.
The bullish run that is illustrated on the chart above is actually just a piece of a much larger picture which is suggesting that much higher YY share prices are on the horizon.
The following YY stock chart illustrates the big-picture snapshot that is suggestive of much higher stock prices.
Chart courtesy of StockCharts.com
This YY price chart is why I am so excited about this company and the prospects of it heading forward. The price action and a momentum indicator are suggesting that the stock price is set to appreciate.
The price action that is highlighted on the stock chart is known as constructive price action, and it consists of an alternating two-wave structure. This wave structure consists of impulse waves, which are highlighted in green on the chart above, and consolidation waves, which are highlighted in purple.
An impulse wave defines the stage in a bullish advance when a stock price appreciates in a swift and linear motion that is characterized with little or no countertrend moves. This wave will usually continue until certain metrics I follow suggest that the investment has reached an overbought condition, implying that a pullback is needed in order to alleviate this extreme condition.
A consolidation wave defines the stage in a bullish advance when the previous gains, which were created during the impulse waves, are digested. This wave is essential in alleviating the overbought conditions that were created in the preceding impulse waves in order to create the necessary conditions for a new impulse wave to develop.
These waves feed off each other, creating the necessary building blocks to create a sustainable trend.
The initial impulse wave that began at $10.50 peaked at $96.39 before a consolidation wave took over in order to alleviate the overbought conditions that were created during that stellar advance. The consolidation wave was in development for two years, and now there are indications that the wave is complete.
In May, YY shares exited the consolidation wave in an upward direction, suggesting that a new impulse wave—which coincided with a bullish moving average convergence/divergence (MACD) cross—is now in development.
MACD is trend-following indicator that is used to distinguish between bullish and bearish momentum. The bullish MACD cross that was generated in May is suggesting that the predominant force influencing the trading action is bullish momentum.
Bullish momentum is essential in staging a price advance. A bullish MACD indication supports the notion that a new impulse wave is now in development. This implies that higher stock prices are likely to follow, putting the previous all-time high of $96.39 in its crosshairs.
Bottom Line on YY
Indications on the YY stock chart are suggesting that this stock is set to appreciate, so it shouldn’t be surprising that I currently hold a bullish view on this investment. Since my views are created using the price chart, I will continue to hold a bullish view until there are indication on the stock that support holding a different one.