An AI stock showing a classic uptrend that investors should ride for as long as possible
As cloud plays like Arista Networks, Inc. (ANET) have continued to impress, there have been numerous calls for an end to the relentless uptrend. But using a classic trend-following toolkit, we see this chart as “innocent until proven guilty.” Today we’ll break down why this chart remains in a bullish configuration, review some of the features that can confirm the bullish trajectory, and show why volume may end up being the warning sign to watch. After an initial rally of the April 2025 low, ANET stalled out at the 200-day moving average. After two failed attempts to breach this long-term trend barometer, Arista finally pushed above the 200-day in late June. The stock gapped higher in early August after a strong earnings report, with the gap range lining up very well with an “island reversal” pattern back in January. A trendline connecting the April low with the swing low in June lines up very well with this week’s low, reinforcing the consistency of this uptrend phase. Recent pullbacks have also found support at the 21-day exponential moving average, suggesting that willing buyers are coming in to “buy the dips” during this accumulation phase. If there would be any pullback in the near future, we would be focused on moving average support as well as the gap range around $125-135. We can confirm this support range with other technical analysis tools, including the Ichimoku cloud chart. Cloud charts are unique in that they forecast a projected support range 26 days out, allowing investors to anticipate potential inflection points before they arrive. In this case, we can see cloud support around $130-142 toward the end of October. So depending on how quickly a corrective move could come, this cloud support could overlap well with the gap support outlined above. The goal with either of these trend-following approaches is to stick with an uptrend as long as the uptrend remains in place. So what sort of “red flags” could help us anticipate an exhaustion point for this long-term bullish phase? Volume and momentum could be the answers. Throughout June and July, the Chaikin Money Flow (CMF) remained well above the zero level. This pattern suggests healthy accumulation, with plenty of volume on up days for ANET. Big from the end of August through this week, we’re noting weaker CMF readings even though Arista has been trending higher in price terms. This volume divergence indicates a troubling lack of volume support for the most recent rally. Another potential issue involves a potential bearish momentum divergence, with the RSI sloping downwards into October despite the strong price action. This divergence could be alleviated by an improvement in momentum through the month of October, but for now it seems as if the strong momentum readings in August and September have evolved into weaker values in October. As a trend follower, charts like Arista Networks strike me as classic uptrends that should be followed as long as possible. The danger in an extended bull market is complacency, and by following indicators such as moving averages and the Ichimoku cloud model, investors can remain engaged as long as the charts suggest doing so. – David Keller, CMT marketmisbehavior.com DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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