CIEN Stock Is Completely Disregarding the Selling Pressure
The stock market environment has been quite dreadful since the beginning of October 2018, with many stocks suffering. There is no doubt that this market has become quite difficult to deal with, but don’t get me wrong: this does not mean there aren’t opportunities all around us.
There’s a saying: “There is always a bull market somewhere.” In essence, it means that, even in difficult market environments, if you look hard enough, you can find stocks that move against the grain and make gains.
There’s a reason why this saying continues to ring true. Money needs to flow somewhere, and even in times of duress, there are asset classes and stocks that will attract these fund flows.
Take a look at Ciena Corporation (NYSE:CIEN). Despite the dreadful market environment, CIEN stock has managed to forge new multi-year highs, completely disregarding the selling pressure that has inundated the markets in recent months.
The strength this stock is currently experiencing is not a total surprise.
In September 2018, I outlined in a publication titled “CIEN Stock Breaks Out, Putting My $50.00 Price Objective into Play” that technical developments were suggesting that Ciena stock was destined for higher prices.
Then, in November 2018, I followed that up with a piece titled “CIEN Stock Is a Bright Light in a Turbulent Market Environment.”
The technical development that was the focus of both of those publications is highlighted on the below chart.
Chart courtesy of StockCharts.com
This CIEN stock chart captures a technical price pattern known as an ascending triangle.
Ascending triangles are technical price patterns that are created when a stock meets resistance at a static high and every failed attempt to break above this static high is followed by a higher low.
An ascending triangle pattern was captured on the chart above by connecting the peaks and troughs created by the price action.
The converging trend lines that encompass the perimeter of this pattern are very important because they pinpoint where the significant levels of price support and price resistance are.
This is important information because the stock price needs to exit the pattern in order to complete it.
Exiting the pattern can be done in one of two ways: by breaking above price resistance or by breaking below price support. Breaking above resistance would indicate that higher prices are likely, whereas breaking below support would indicate that lower prices are likely.
On August 30, 2018, Ciena stock closed above price resistance, which resided at $28.00. This event is highlighted as a breakout on the chart above.
CIEN stock completed the price pattern, indicating that higher prices were likely to follow. In November 2018, the implications of this completed pattern were reaffirmed by a backtest, and higher stock prices have prevailed since.
The size and duration of the pattern is important because the bigger the pattern, the bigger the move that’s expected.
This ascending triangle was in development for seven years before it was finally completed. That makes it one of the larger patterns I have come across, ultimately suggesting that a large move is expected.
The implications of this large completed pattern are why Ciena stock has been able to brush aside the selling pressure that has been plaguing the stock market in recent months.
I mentioned in my two previous articles about CIEN stock that $50.00 is the price I believe this stock is destined to attain.
This price objective is not just some arbitrary number I came up with. It’s actually a significant level of price resistance, which is highlighted on the following stock chart.
Chart courtesy of StockCharts.com
The chart above highlights a horizontal level of price resistance that resides at $50.00. This price point was first established as a resistance level in December 2002. It was tested in January 2004 and then again in October 2007.
Since the 2008 financial crisis, this level of price resistance has yet to be tested.
I believe that the implications of the completed ascending triangle—that higher Ciena stock prices are developing—are why this level of price resistance is due to be tested again.
I am reiterating my bullish view on Ciena stock because the implications of the technical price pattern that was completed in August 2018 continue to resonate.
This is evident in the fact that CIEN stock continues to make new highs in the midst of a difficult market environment. Ultimately, that takes it closer to my $50.00 price objective, one step at a time.
Check out the original article here.
Author: Patrick Brik, BAS, CFA, CMT