CSIQ Stock Trend Reversal
Well, it didn’t take long for that pattern on the Canadian Solar Inc. (NASDAQ:CSIQ) stock chart to resolve itself, and now that the pattern is complete, bullish implications are expected to follow.
I originally outlined the pattern that was setting up on June 29, in a publication titled “Canadian Solar Stock on the Cusp of a Breakout.” I was particularity excited about the ramifications of this price pattern because numerous solar stocks have been staging an advance, and the move toward higher prices has been a sector-wide phenomenon. Sector-wide moves are particularly powerful, and, therefore, when a bullish price pattern is being painted on the stock chart, it is always wise to pay attention.
The beautiful pattern that was painted on the CSIQ stock chart is an “inverse head and shoulders” price pattern.
An inverse head and shoulders pattern contains three troughs. The middle trough is the largest, and the first and third troughs are of almost equal size. The neckline is created by connecting the reaction highs. These three troughs and the neckline create the inverse head and shoulders price pattern, which is completed when the stock price closes above the neckline.
The following Canadian Solar stock chart illustrates the technical price pattern which is now suggesting that an advance is in development.
Chart courtesy of StockCharts.com
These patterns are particularity significant because they suggest that a trend reversal is in the making, and they pinpoint when an investment transitions from a bearish trend into a bullish one. Transitions from bearish trends into bullish ones provide the best opportunities because the performance numbers that follow are usually the greatest.
In my previous publication about this company, I outlined that the neckline was sitting at $16.00, and that—in order to confirm that a trend reversal was in the making—the CSIQ stock needed to close above this level.
On July 12, Canadian Solar stock was finally able to clear this level of resistance, and now bullish implication are expected to follow.
The head and shoulders price pattern not only suggests that a new trend is developing, it’s also constructive in suggesting an initial price objective. This price objective is constructed by taking the depth of the head and extrapolating that value above the neckline. This method produces an initial price objective of $21.50, which is the level I am now targeting and would use to set up a trading strategy.
The following Canadian Solar stock chart illustrates that the backdrop has also become bullish, which supports the same notion of higher stock prices.
Chart courtesy of StockCharts.com
The bullish backdrop I am referring to is being suggested by the moving average convergence/divergence (MACD) indicator in the lower panel of the CSIQ stock chart above.
MACD is a simple, yet effective, indicator that distinguishes between bullish and bearish momentum by using the crossing of a signal line. A bullish cross suggests that bullish momentum is influencing the trading in a stock, while a bearish cross suggests that bearish momentum is influencing the trading action.
In order to stage an advance, buying pressure is required, which translates into much-needed bullish momentum. The stock chart above determines, depending on which signal the MACD indicator is suggesting, whether Canadian Solar stock is staging an advance.
In August 2012, A bullish MACD cross was generated, indicating that the bulls had gained the upper hand, with bullish momentum dominating. The stock price proceeded to appreciate by 837.84% until a bearish MACD cross was generated in October 2014, which negated the bullish backdrop that was created by this indicator.
This bearish MACD cross correctly suggested that the advance had concluded, and that a slow and steady drift toward lower prices had developed which erased much of the gains that were created during the previous advance. In June 2017, a new bullish cross was generated, and it is creating a bullish backdrop that is again suggesting that CSIQ stock is set for an advance.
The culmination of the MACD cross and the completion of the head and shoulders pattern are enough to suggest that a trend reversal has just occurred, indicating that Canadian Solar stock has just transitioned from a bearish trend to a bullish one. Catching an investment as it transitions like this provides a significant opportunity.
Bottom Line on Canadian Solar
I am bullish on Canadian Solar stock because there are a number of indications that were generated using the company’s stock chart which suggest that CSIQ stock is set to appreciate from current levels. As long as these indications remain in bullish alignment, I will continue to hold a bullish view on this investment.