Acacia Communications (ACIA) has been in beast mode since it IPO’d back in May of this year gaining more than 350% (from peak to trough) in 3 short months. Since it peaked, it has been consolidating sideways, digesting its gain and setting up for its next move.  Any time price consolidates it has the option to continue or reverse. Which way will ACIA go?

On the bearish side, the current consolidation has formed a symmetrical head and shoulders bearish reversal pattern with negative divergence which if confirmed has a target below some 29% lower, filling the gap.

The bullish interpretation is the recent consolidation is needed to set up for a push higher. Instead of the consolidation being a head and shoulders bearish reversal pattern it could easily morph into a bullish flag continuation pattern once confirmed with the conservative upside target some 100% higher.

As always there is a way to interpret any movement as both bearish and bullish, depending upon your bias. Since bias is one of, if not THE, biggest investment problems it is imperative to be agnostic when investing and wait for confirmation and have a plan in case you are wrong.

The stakes and return on this investment is big so it’s important to get it right. For me a close and hold above prior $128.73 highs is the confirmation I would be looking to go long. If, on the other hand, price closes and stays below the red horizontal support line at $102, I would expect a quick and violent decline back to fill the open gap below so those who feel comfortable shorting could initiate a position then. While price is stuck between the upper and lower boundaries I am happy to sit and watch the bulls and bears fight it out.