Fitbit Inc: If FIT Stock Can Do THIS, It Will Take Off
FIT Stock: Potential Bottom
Fitbit Inc (NYSE:FIT) stock represents a company that makes a device that gets people moving by tracking their footsteps in one convenient piece of jewelry. This technology has not translated into profits for shareholders because, after a brief pop following the initial public offering (IPO), the trend for FIT stock has been dismal. This company needs something to get it going, similar to the service that it provides to consumers.
My number one tool for deciding whether an investment is compelling is the company’s stock chart. Using the Fitbit stock chart, I will provide my constructive criticism. I am currently neutral on this company but, in order for Fitbit stock to get moving, it will need to capitalize on the current positive developments. I will outline these developments and the the criteria I will need to swing my bias to bullish.
The following chart illustrates the biggest obstacles that Fitbit stock needs to overcome.
Chart courtesy of StockCharts.com
There are two important levels that need to be overcome for my bias to swing to bullish on FIT stock. At the current juncture, these two levels of resistance coincide with one price.
The first level is marked by a downtrend line. This trend had dominated FIT stock since August 2015. This downtrend line, highlighted in blue, is created by connecting the peaks. A downtrend is defined by lower lows and is confirmed by lower highs. It can easily be identified as the price moves from the upper left to the lower right. This is clear example of a bearish price action.
The second level is marked by a horizontal line, marked in yellow. This line marks the low in the price of FIT stock when it first began trading, and it also marks the most recent bounce in the share price. This area of congestion will cause some resistance to price appreciation in Fitbit stock.
As long as Fitbit stock is trading below both these levels, a bear market exists. A break of the downtrend would be reason to celebrate, as it would mark the end of the bear market. A break of the horizontal resistance would bring upon the notion that a new bull market has begun.
The following FIT stock chart illustrates that a bottoming process has begun.
Chart courtesy of StockCharts.com
Fitbit stock has spent all of 2016 setting up a potential bottoming pattern. The pattern is question is a double bottom trend reversal pattern. The price must trend down into a double bottom. This pattern is marked by two consecutive bottoms, separated by a peak in between. The pattern is confirmed when shares close above the peak that separates the two bottoms.
This pattern is also of great benefit because, not only does it signal a change in trend, but it also produces a possible price objective. This pattern projects a potential price target of $26.00, and is confirmed when the price of Fitbit stock closes above $19.00.
The short-term price action supports a possible test of the bottoming pattern, and is illustrated on the FIT stock chart below.
Chart courtesy of StockCharts.com
Fit stock is testing the 200-day moving average. The 200-day moving average is the dividing line between stocks trading in a bull market versus stocks trading in a bear market. When the share price is above the moving average, it is bullish; when the share price is below the moving average, it is bearish.
The chart pattern suggests that Fitbit stock has a fighting chance at successfully breaking above the moving average. The pattern that has set up is bullish, as a impulse wave was followed up by a consolidation wave. Consolidation waves are a time and space where price movements are digested until the pattern can give way to another impulse wave.
On September 19, 2016, this consolidation gave way, and a new impulse wave has begun. The projected price target of the impulse wave is $19.00. This price objective assumes that the double bottom peak is going to be tested, and leaves the door open for a possible trend reversal.
The Bottom Line on Fitbit Stock
My current bias on Fitbit stock is neutral. In order for FIT stock to get moving, it will need to confirm a bottom by closing above the peak illustrated above. A successful close above that peak would place my bias into the bullish camp. The short-term pattern supports the notion that a test of that level is in play, and I am patiently awaiting an outcome.
