Shares of virtual visualizations and cloud company VMware, Inc. (NYSE:VMW) have worked higher in an orderly fashion off their February lows, and they’re currently trading in a tight, bullish technical pattern. If this plays out, VMW has a well-defined upside target about 12% higher from last Friday’s close.
Active investors and traders should watch VMW stock closely and be ready to pounce.
When VMware reported its latest quarterly results on April 28, it beat on both the top and bottom lines, plus it green-lit a $1.2 billion stock repurchase program. VMW stock rallied strongly as a result, which built the grounds of this next bullish pattern.
I discussed this bullish pattern the last time I highlighted VMW stock on April 28. VMware has largely consolidated since then, giving this bullish pattern even more credibility.
Now, shares are coiling up for another leg higher.
VMW Stock Charts
If we take a step back on the multiyear weekly chart, we see that VMW stock after a sharp rally off the 2008 lows began settling into a topping process in 2011. Over the ensuing years, the stock continually found support in the low $70s. There was a two-month period in 2013 in which VMW fell into the mid-$60s, but it rebounded quickly and ultimately rallied to a lower high in spring 2014.
VMW took years building a well-defined line in the sand (black horizontal) which finally snapped in October 2015 as shares accelerated in a downward spiral. By February of this year, VMW stock had lost about 60% from the lower highs in March 2014, which also left the Relative Strength Index (RSI) at the bottom of the chart in record oversold territory.
VMware then began to bounce along with the rest of the market, and now, it looks like shares have plenty of room to run back toward the black horizontal line before more serious technical resistance comes into play.
On the daily chart note that the post-earnings up-gap from April 28th broke the stock out of a multimonth consolidation phase. Although VMW stock has since mostly just consolidated sideways, it has in this time developed the cup of the so-called “cup and handle” formation. The selloff from late 2015 into February followed by the rebound formed the cup of this formation and the consolidation phase since late-April built the handle.
This formation on VMW stock here also has well-defined horizontal resistance around the $60 mark and a clear next potential upside target in the high $60s. The upside target is the top of the down-gap from last October, i.e. the top of the blue box that I marked on the chart.
Active investors and trades could look to buy VMW stock upon a break and hold above $60 using the mid- to high $60s as a first upside target, all the while respecting any sharp bearish reversals.
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