Stock of the day: HP
08 August 2023
Today's stock of the day is Hewlett-Packard (HP), a company that has been trading in a sideways trend but retains a broadly bullish outlook. The stock's recent movements show a pattern that is not uncommon in the markets, albeit one that presents an intriguing situation for traders.
HP's price chart has been forming a rising wedge pattern over the past few months. Marked with black lines, this wedge culminated in a bullish breakout in mid-July, where the price overcame the orange horizontal resistance and the upper line of the wedge. Post breakout, however, the price action didn't continue its upward trajectory but instead started moving sideways. This sideways movement has resulted in the formation of a smaller wedge, delineated by purple lines on the chart.
This smaller wedge is typically seen as a bullish formation, given its tendency to incite a breakout to the upside. In this case, a daily closing price above the upper line of the smaller wedge would present a clear buy signal. However, a factor potentially limiting this bullish outlook is the existing bullish gap. It's common knowledge among traders that gaps often 'like to be closed'. Consequently, the price could potentially dip to close the gap, reach the orange support, bounce off it, and then resume its upward climb.
If the price were to break below the lower line of the wedge, it would open the way to this second scenario. It's an outcome we need to watch closely, but with numerous supports in place, even such a downward break wouldn't necessarily change the overall bullish sentiment. The only event that could truly alter the bullish outlook would be a break below the lower line of the larger, black-marked wedge. However, the likelihood of this scenario currently seems low.