By Patrick Brik, BAS, CFA, CMT

Published: November 9, 2016

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Patrick Brik, BAS, CFA, CMT
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FireEye Inc: This Trigger Event Could Send FEYE Stock Soaring

FEYE StockFEYE Stock: Bear Market Rally

FireEye Inc (NASDAQ:FEYE) reported a $0.18 loss when the market was expecting a $0.30 to $0.31 loss. This news sent FEYE stock soaring and it closed the day higher by 7.03%. I would love to say that this price action is suggesting something bullish is on the horizon, but unfortunately, I cannot. In order for this view to come to fruition, FEYE stock will need to do a lot more heavy lifting. That isn’t to say that it is out of the question.
I use price charts as the foundation of my investment analysis, and this style of investment analysis has been instrumental in setting up systematic and strategic investment strategies. My view on FireEye stock is based on the pattern and trading action that is visible on the price chart.
I am bearish on FEYE stock because the larger trend is bearish. There is a possibility for price to become constructive, and I will outline the objectives I would need for such an outcome to come to fruition.

The following chart illustrates the trend that defines trade in FireEye stock.

feye

Chart courtesy of StockCharts.com

The FEYE stock chart above illustrates the larger bearish trend I was referring to. There are two parallel lines that define this trend. The pattern is known as a descending channel. A descending channel has two trend lines that define the upper and lower bounds. The share price oscillates between these two lines for as long as the trend permits. A trend reversal occurs when shares finally gather enough strength to break out of the channel.

FEYE stock can rally to $30.00 and still be in the confines of a bear market. It is for this reason that if a setup made itself apparent, I would trade it because there is quite a bit of upside that could be captured before price runs into resistance.

The following FireEye stock chart illustrates the bearish price action on the shorter term chart that could be constructive.

feye2

Chart courtesy of StockCharts.com

A death cross is a bearish signal that is produced when the 50-day moving average, highlighted in blue, crosses below the 200-day moving average, highlighted in red. FEYE stock produced this bearish signal in September 2015 and shares proceeded to sell off 65% before a bounce finally ensued. This signal is still intact and bearish headwinds still prevail.

A golden cross, which is the exact opposite of a death cross, would need to be generated to indicate that the tides have changed. A higher price would be needed to generate such a signal.

FireEye stock has just bounced off the lower trend line that is now support, so there is hope that a rally might commence. However, nothing as of yet has confirmed such a move. If a rally were ever to develop, FEYE stock would first need to close above $17.50 to confirm that a rally is in play. This price point is significant because it is above both moving averages and would result in a golden cross. This price point would also generate a short-term bottom as the resistance that is outlined on the chart would be broken to the upside.

If this feat were ever accomplished, it would put the longer-term level of resistance in play that is highlighted by the descending channel on the first FireEye stock chart. Bear market rallies have been known for exceptional returns in a short amount of time, and this one would be no different.

Bottom Line on FEYE Stock

I am bearish on FireEye stock because the longer-term trend is negative. I have outlined what could be used to define a bear market rally in FEYE stock,  but this strategy is risky and only those who understand the risks should pursue such a venture.