Shares of HP Inc (NYSE:HPQ) closed 2017 higher by about 40%, helped by another strong performance year by the technology sector as a whole. While the nearly two-year run higher in HPQ stock currently measures around 130%, the notably well-defined up-trend within which this rally has taken place is something I want to continue to respect from the long side, until it changes.
I often discuss in this column that a sound trend-following strategy is still in my mind one of the most powerful and financially rewarding strategy that can be deployed for private as well as institutional traders and investors. The trick of course as with any strategy is that it is executed the correct way. The absolute key with trend following is to buy low and sell high – shocking as that may sound (note the sarcasm).
To illustrate this point better let’s move over to the HPQ stock charts.
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
From the bigger-picture multiyear weekly perspective, we see that HPQ stock may still be in the process of tracing out a very large basing pattern. The lows of this pattern took place with exhaustion selling into the November 2012 lows. With just a little more creativity we can also draw a left and as a right shoulder (blue bubbles) to make this entire pattern look like an inverse (bullish) head-and-shoulders pattern.
Although the nearly two-year rally so far has over this period of time also traveled quite far (i.e. sharp rally), we can see that a) there is still more upside just to the get the stock back to the well-defined horizontal line of resistance and b) ultimately plenty of room for a whole new breakout higher.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that each time in 2017 that HPQ stock pulled back to the lower end of its trading range, it became a buy again from a trend-following perspective. To wit, managing “the range” is what sound trend following is all about. This is to say that good trend followers take partial profits on their long positions at the top end of the range and look to re-buy more of the stock at the lower end of the range (upon buying pressure confirmation).
Since HPQ stock tapped the higher end of its range in Q4 2017, it has taken a breather and is now again moving go the lower end of the range. My game plan here is to buy HPQ stock again upon the next bullish reversal near the lower end of the range, i.e. upon a strong up day/week that proves to me the bulls are ready to take this stock back higher again to the upper end of the range in the mid-to-higher $20s.
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