FTNT Stock: Setting Up to Run
I am focusing on Fortinet Inc (NASDAQ:FTNT) stock because I have reason to believe that the share price is now set to appreciate. As an investment professional, my job is pretty simple after I finally arrive at a conclusion. I am either bullish on FTNT stock and believe that higher prices will prevail, or I am bearish on Fortinet stock and believe that a lower share price will prevail.
Getting to that final conclusion can sometimes be a daunting task, depending on the method I use to analyze a potential investment.
I respect fundamental analysis but, when it comes to producing a timely investment conclusion, I have found that the best results have been produced using technical analysis. This method of investment analysis is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. In terms of producing timely investment strategies, this method is the only one that has provided the edge I seek.
The following Fortinet stock chart illustrates the indicator which suggest that a bullish view on this investment is warranted.
Chart courtesy of StockCharts.com
Since the first day that FTNT stock began trading, it has been trending higher. This trend toward higher prices has been characterized by constructive bullish price action.
Constructive bullish price action consists of a two-wave structure. This first wave is an impulse wave, and this wave is highlighted in green on the chart above. The second wave is a consolidation wave, and this wave is highlighted in purple on the chart. This wave structure is essential in creating a trend that is sustainable. The impulse wave serves to advance the share price, while the consolidation wave serves to alleviate overbought conditions and set up the next advancing impulse wave.
Fortinet shares are currently carving out a consolidation wave and, when this pattern is completed, a new impulse wave is set to develop.
The moving average convergence/divergence (MACD) indicator in the lower panel has been instrumental in confirming the direction of the predominant trend. MACD is a simple and effective trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum. I used a monthly scale to generate this indicator in order to smooth out the signals that have been generated, and to pinpoint the longer-term trend.
In May 2014, a bullish MACD signal was generated which suggested that bullish momentum was driving Fortinet stock. As a result of this bullish momentum, the path of least resistance was geared toward higher prices. This indicator served to support the impulse wave that took FTNT stock from a low price of $20.00 to a high of $50.31.
In December 2015, a bearish MACD signal was generated, which suggested that bearish momentum was now propelling FTNT shares and that the path of least resistance was toward lower prices. This indicator effectively confirmed that the advancing impulse wave had concluded, and that a consolidation wave had begun.
As recently as this month, a new bullish MACD cross was generated. This indicator is once again suggesting that bullish momentum is propelling Fortinet shares. Higher stock prices can now be expected because the path of least resistance is toward higher prices.
To confirm that the advance suggested by the MACD is going develop, the share price needs to exit the consolidation wave in an upward direction so an advancing impulse wave develops.
The following Fortinet stock chart takes a closer look at the consolidation wave that is in development.
Chart courtesy of StockCharts.com
The pattern that is playing out on the price chart above is a “cup & handle” pattern. This pattern gets its name because of the shape it creates on the price chart.
The shape of this pattern is a result of shares getting rejected by an important level of resistance. This is then followed by a sell-off. The second time that shares reach this level of resistance, the cup is created and another sell-off ensues. This time the reaction is smaller. This smaller reaction leads to another test of resistance. The third time around, the test of the resistance level creates the handle. The technical pattern is finally compete when shares break above this level of resistance, which serves to suggest that higher share prices are likely to follow.
Like many technical patterns, this pattern is useful on many fronts. Not only is this pattern instrumental in suggesting the next direction that the price is heading in, it can be used to generate a potential price objective. This price objective is obtained by taking the depth of the cup and extrapolating it above the horizontal level of resistance. Applying this method to the pattern above provides a potential price objective of $50.00.
Bottom Line on Fortinet Stock
I am bullish on Fortinet stock because indicators and price patterns are coming together to suggest that higher stock prices are on the horizon. My bullish beliefs were generated using the FTNT stock chart, and these beliefs will remain bullish until there are indicators on this price chart that suggest another view is warranted.