Technical Analysis: Zayo Stock Breaks Out

Zayo Stock
Credit:iStock.com/maxsattana

ZAYO Stock: Confluence of Indications Support a Bullish Outcome

I am pleased to report that the technical price pattern I have been watching on the Zayo Group Holdings Inc (NYSE: ZAYO) stock chart has come to a bullish resolution, which indicates that higher ZAYO stock prices are now in development.

I originally outlined this technical price pattern on September 20 in an article titled “ZAYO Stock Is Only Moments Away from a Breakout.”

If this is your first foray into my work, let me quickly explain how I develop my views on investments. The research method that I employ is called technical analysis, and it is predicated on the notion that historical price and volume data can be used to generate indicators, which can then be used to forecast what the future may bring. These data points are found on the company’s stock chart, and my views are based on my ability to read and understand the indications that are generated by it.

I have spent nearly two decades using technical analysis to create views and investment strategies and, although it is not perfect when it is applied correctly with the proper risk management techniques, the results are very impressive.

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The following Zayo stock chart illustrates the completed technical price pattern that is suggesting that higher stock prices are now in development.

Zayo stock chart

Chart courtesy of StockCharts.com

The completed technical price pattern that is highlighted in the stock chart is a well-defined trading range.

This trading range consists of price resistance that stood at $35.50, and price support that stood at $29.50. These levels, which define the trading range, each contain the minimum two points of contact required to create them. The trading range is a consolidation pattern that acts as a setup that will determine whether the next move is towards higher or lower stock prices.

On October 19, Zayo stock exited the trading range in an upward direction, suggesting that higher stock prices are on the horizon. This breakout was not a total surprise, because a technical indicator was already inclined to suggest that such an outcome was in development.

This indicator is located in the lower panel of the above chart, and it is labeled “MACD.” MACD is an acronym for moving average convergence/divergence, and this indicator is used to distinguish whether bullish or bearish momentum is influencing the trading action in a stock.

A bullish MACD cross was generated in July, which implied that bullish momentum was influencing the stock price. Bullish momentum creates a path of least resistance geared toward higher stock prices, which is why, when I presented this pattern in September, I was inclined to believe that the trading range would resolve itself in a bullish manner.

This trading range is actually part of a larger wave structure, which is highlighted on the following stock chart.

ZAYO price chart

Chart courtesy of StockCharts.com

This Zayo stock chart illustrates the constructive price action that has characterized the movement in this investment. Constructive price action consists of an alternating wave structure consisting of impulse waves and consolidation waves.

The impulse waves, which are highlighted in green on the chart, define the stage in a bullish trend when the stock price stages a progressive move toward higher stock prices.

The consolidation waves, which are highlighted in purple, define the stage in a bullish trend when the stock price corrects in order to create the necessary conditions so a new advancing impulse wave can develop.

These waves are dependent on one another. Therefore, in an alternating wave structure, they create the pillars that create and sustain a trend.

The trading range (which doubles as a consolidation wave) is now complete, which suggests that a new impulse wave is now in development and that,  therefore, higher stock prices can be expected.

The great thing about constructive price action is, not only does it indicate which direction the stock price is heading, it’s also instrumental in providing a potential price objective. This objective is based on the theory that the impulse waves that are separated by a consolidation wave tend to mirror each other in terms of dollar lengths. Applying this theory to the price action on the ZAYO stock chart produces a $45.00 price objective.

Analyst Take:

A number of indicators, including a completed technical price pattern, are suggesting that higher Zayo stock prices are on the horizon. As a result, I am bullish on this stock, and I will continue to hold this view until the technical analysis suggests that another view is warranted.