VMware, Inc. (NYSE:VMW) stock rallied Wednesday, further solidifying the technical picture for this virtualization solutions and cloud computing company.
I shared my bullish thoughts on VMW stock on April 28 — a few days after VMware’s most recent earnings report — saying that follow-through buying in shares would likely ultimately take place and get the next up-leg going.
Well, Wednesday’s rally just ripened VMW for that next move up, so the time is right for an update.
Things have been quiet on the news front in recent weeks, but if we look at VMware stock through a structural and fundamental lens, the company still plays in a high-growth area of cloud computing, and in the bigger picture, that should lend plenty of support.
VMW Stock Charts
If we look at the VMW stock price through a multiyear lens, shares continue to be confined by a wide trading range that has been in place since 2011.
As we can see on the first chart below, big-picture support sits around the low $70s while resistance comes in around the $110 area. VMW stock currently sits near $90, so right about in the middle of this range after finding support again earlier in the year. From this angle, one might declare VMware shares as sitting in neutral territory; however, the bullish case (at least for a trade) becomes more clear when we zoom in on the daily charts.
On the daily chart, we then again see that the January washout in VMW stock developed an inverse head-and-shoulders pattern and an overall better bottoming phase, which has bullish implications.
After VMware broke past the neckline of this pattern (black horizontal) on the back of the April earnings report, it also quickly overcame its downsloping 200-day simple moving average (red line) as well as a diagonal line of resistance from the April 2014 highs. Furthermore, the post-earnings rally came on an up-gap move on good volume, so all three of these resistance points were overcome with good momentum.
Nevertheless, VMware stock began settling into a tight consolidation range that all the while held above all of these previous resistance points. This in essence allowed VMW to build a higher base from which to ultimately push higher from.
Wednesday’s 3%-plus rally still has the stock sitting marginally below its April 22 highs, but we’re still getting signs that VMW could start a new leg higher toward the $96 area.
Active investors could use Wednesday’s strength to jump into a long position in VMW stock while respecting any bearish reversal of Wednesday’s rally as a sign that shares need more time to consolidate.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
