This Stock is an Easy Long Play

Shares of enterprise cloud applications company Workday Inc (NYSE:WDAY) are higher to the tune of more than 45% year-to-date. While I’d typically be the first to admit that chasing a stock like this is a low-probability strategy, WDAY stock currently sports one of the most bullish technical patterns that should reward both investors and traders.

Before discussing the pattern and digging into the charts, I would be remiss not to make you aware of Workday’s next earnings announcement, scheduled for June 1.

From a trading perspective, this date could lead to a further boost in WDAY stock, or a retracement lower in the stock that would need to be bought.

All of this depends on how the stock acts in the next couple of weeks.

When it comes to technical analysis, there’s no shortage of “patterns” one can construct either bullish or bearish trades around.

However, in my nearly 20 years of trading experience, I can tell you that not all patterns are created equal.

Some are more likely to lead to profitable trades than others.

One of the highest-probability technical patterns is called the “inverse head-and-shoulders pattern,” which has bullish implications for the asset in question.

Workday currently has one of these patterns on display.

WDAY Stock Charts
On the multiyear chart, we see that WDAY recently broke past the black horizontal (or slightly diagonal) line. This line is what we refer to as the “neck line” of the pattern.

Note the three blue bubbles I marked on the charts. Those from left to right are the left shoulder, head and right shoulder respectively (hence the inverse head-and-shoulders pattern).

Also note that WDAY stock had several attempts at trying to overcome this line of resistance around the $90 mark. But this week, it finally managed to break higher.

More often than not, a big-picture breakout over time leads to a check-back to the breakout line. In this case, that means the $90 area. This type of check-back may be in the cards following Workday’s upcoming earnings announcement — or earlier, depending on how the stock reacts between now and June 1.

Regardless, through a multiyear lens, this is a bullish chart that ultimately should find it easy to move well into the $120s or higher.

On the daily chart, we see that this week’s breakout has cleanly pushed the stock above the $90 mark.

While the move may already be somewhat overbought in the near-term, momentum looks to be on the side of Workday. I don’t want to fight that.

As such, traders could look to establish an initial long position in WDAY stock at current levels to position themselves for much higher gains over time, as per the above chart. Any pullback to the low $90s or high $80s would likely offer another buying opportunity.

– Serge Berger

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Source: Investor Place



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