Western Digital (WDC) - Get Report began the session on Tuesday with an upside gap that lifted the stock above last week's high. This news-inspired surge extended into the early going, and at midday, Western Digital stock was up nearly 5%.
Since then, the stock has been fading and is trading at the opening print at publication time.
For Western Digital bulls, this is clearly a warning sign of upside exhaustion.
Western Digital began its second leg of the post-election rally in late November after taking out heavy supply near the $61 area. The stock stalled for a bit as December began before receiving a big jolt on Dec. 7. The stock surged that day on news of a bump in guidance. By the close, shares were up more than 8% on extremely heavy volume, but further upside has been rather difficult to find. The stock moved sideways in a narrow consolidation pattern after the Dec. 7 rally and was setting up well for another breakout.
Tuesday morning's upside gap may have provided the spark needed, but the afternoon fade looks troublesome.
For patient Western Digital investors, a deeper pullback from Tuesday's spike high is looking very likely and with it, much lower-risk entry opportunities.
A drift back down to the $64.30 to $62 area would retest a very solid support zone. This key zone includes the November high as well as the Dec. 7 breakout gap near the upper band and the October high near the lower band. Until then, today's spike high may prove to be hard to eclipse.
This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.