This Stock is Setting Up for a Perfect Trade

FireEye Inc (NASDAQ:FEYE) last week delighted Wall Street by reporting better-than-expected earnings and revenues for the first quarter, as well as guidance that surprised to the upside. FEYE stock rallied sharply in response.

FireEye had been a painful and volatile story for investors over the past years. However, last week’s recovery showed renewed hope the stock, which as a result looks much more promising on the charts.

Specifically, FireEye reported revenues of nearly $174 million, handsomely beating the $163.50 million expected by analysts.

The bottom line came to a loss of 9 cents, also well above the 26 cents in red ink that analysts were expecting to spill.

FEYE now sees full-year revenues and earnings also coming in above the analyst consensus.

Before digging into the charts, I will share with you that my own survey of traders last week revealed plenty of bearishness around FireEye stock, and skepticism around last week’s post-earnings rally.

Through a contrarian lens, this is exactly what one likes to hear about the moods of investors and traders, as this type of setting can lead to meaningful squeezes higher.

FEYE Stock Charts
On the multiyear weekly chart, we see that after a steep selloff in 2015 and into early 2016, FireEye shares began trading in a tighter and choppier range (purple dotted lines). This formation in 2016 and early 2017 repeatedly found support around $10.75-$11.

In the first half of March, FEYE stock once again tried to break below this area of support, but once again, the bears got rejected.

Last week’s strong weekly breakout rally and resulting bullish candle thus confirmed the strength of this area of support. The breakout pushed FireEye not only past diagonal resistance and out of this range, but also above the 50-week simple moving average (yellow).

On the daily chart, we note that FEYE stock in the second half of March began a series of up gaps. The stock then consolidated in a sideways fashion into early last week, before gapping higher yet again following the May 2 earnings report.

Although one day (or week) does not make a trend, this bullish move could well have set the stage for a better attempt higher through a multiweek/multimonth lens. The high teens ($18) could be a mark right now.

While last week’s breakout rally was constructive and came on a massive spike in volume (a positive sign), from a near-term momentum perspective, FEYE stock may be stretched, if the MACD oscillator (bottom of the page) is any indication.

Thus, I wouldn’t chase the stock higher right here right now, but after a little consolidation sets in.

One way to remain patient yet involved in FireEye stock would be to buy a small amount near current levels ($14.50-$14.80), then look to buy more stock or call option spreads upon some consolidation followed by a bullish reversal.

– Serge Berger

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Source: Investor Place



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