|MBLY Daily Chart|
Looking at our chart, however, we can see the break of that diagonal trend-line just as the stock broke out from its bottom near year-end. Notice the volume that coincided with that breakout. That surge was on 29 December 2016, and was more than double average volume in a period where overall market volume is exceptionally low. There was strong follow-through with that volume in each wave, too.
It's likely no coincidence that the company announced a deal with BMW and Intel on 4 January 2017. The plan is for BMW to test 40 driverless cars in the US and Europe in 2017 using Mobileye's anti-collision technology. (Reuters: BMW, Intel, Mobilieye to Test 40 Driverless Cars in Second Half of 2017.) The $9 leap in price in the week preceding that news is a good sign of institutional and specialist interest, especially given the volume we saw in the last week of the year.
Let's zoom into this chart now to see what type of entry may be available. I prefer the 30-minute chart for entries, as opposed to the hourly chart, since the 30-minute doesn't cross daily boundaries and better aligns with the hectic first and last half hours of the trading day.
|MBLY 30-Minute Chart|
What we are attempting to ascertain is whether or not that 5-wave impulse was merely the first wave of a much larger higher order impulse. The volume pattern and the consolidation we're seeing now suggests that it is. The problem is, we don't yet know which way this next move will break. The pattern can be interpreted as a descending triangle (which has a probable downside break) or a pennant coming off that 5-wave impulse (which has a probable upside break.) We can make a case for either one.
A bit of caution is needed. That lengthy consolidation on the 30-minute is only 2 bars on the daily, and after the move this stock made, that's not enough of a correction to signal the next move with any conviction. I'd expect to see a bit more of a pullback on the daily, which means we may get a downside break of that triangle on the 30-minute. Because of the daily pattern, I won't take a short position on that first break. Rather, I'd only take it on a retest and subsequent failure of the base of that triangle. We need confirmation that it's a true resistance line before entering.
That's not true on an upside break, however. Because of the strong move this stock made in the first place, and because of the high demand showing in the volume signature, we will take a long position on an upside break. Notice that the daily is showing a strong support line at the bottom of today's candle, so a protective stop below the low of the January 4 candle would be a safe play. This is a momentum play, so a break below that candle would signal a level of weakness that would invalidated the trade, and we'd want out immediately.
Watch the 30-minute chart but be wary of a possible bear trap. On the upside, a conservative target is the resistance level at $46.98. On the downside, a conservative target is the support level of $34.06. Let's see how this one plays.