For the last few days I have been speaking about consolidation and how healthy it is for this equity right now. As nice as it is to see new 52 week highs, if we want to see these levels hold we need to have a good foundation. Consolidation allows for that.
As I have stated, I am not worried about these dips all the way down to $3.50 as long as they do not happen on heavy volume. We have lower than average volume, which means no worries.
The other dynamic I want to see is a bit of contraction in the gaps between the EMA's. Even with the down day today, we are still at 23 cents between the 5 day and 50 day moving averages. I would love to see this gap narrow to about 12 cents.
Another reason we want to see consolidation is in the support and resistance. Above current levels is uncharted waters. Below we only have weak to moderate strength all the way down to $3.23. That is a substantial difference from current prices. With consolidation we can see support strengthen.
The EMA's have put up a caution flag. I am not very worried about that and stated yesterday that we would likely get two caution flags sometime prior to options expiration. I am essentially looking for this to be a consolidation week followed by a pre-earnings run next week.
For earnings we will be seeing several metrics hit records. How the street reacts to the earnings should be positive. This will likely be the quarter where we see analyst upgrades and price target increases.
Support and Resistance
Exponential Moving Averages