The stock of virtual visualisations and cloud company VMware (VMW:xnys), once a must-own name has struggled since topping out in 2012. After a severe beating in 2015, however, the stock is setting up a promising breakout trade.
After VMware reported its latest quarterly results on April 19 its stock price jumped and began building a base for the current setup that I am focusing on.
On the multi-year weekly chart we see that after a multi-year topping phase VMW stock finally broke in the autumn of 2015 when it snapped its blue horizontal support line around the $64–$65 area. Severe oversold readings in February led to a good rally and through this lens could have further upside still toward the blue horizontal, which may then act as better resistance.
Source: Saxo Bank
On the daily chart we see that after VMW stock rallied and gapped higher after the earnings report in April it began to settle into a consolidation phase. This consolidation phase is taking place right below horizontal resistance around the $60–$61 mark as well as near the red 200-day moving average. The more the stock continues to coil up here the better the odds of an eventual break above the $60 area and a filling of the blue box, which represents the still unfilled part of the down-gap from October 21.
Management and risk description
The risk to this trade is that a breakout simply takes longer to come to fruition than it currently looks like, in which case a further sideways consolidation or another push lower may be on the cards. Traders could thus look to only take this trade upon a confirmed push above the $61 area on improving volume.
: Buy the stock or CFD on a close above $61
: $65, followed by $68
— Edited by Clare MacCarthy
Non-independent investment research disclaimer applies. Read more