FUEL Stock: Has Rocket Fuel Inc Finally Bottomed?

Is the Bottom in for Rocket Fuel Inc StockIs the Bottom in for Rocket Fuel Inc Stock?

Rocket Fuel Inc (NASDAQ:FUEL) stock was a rock star for investors who were able to purchase shares prior to the initial public offering (IPO). These lucky few were able to purchase shares at $29.00 and, when public share trading finally began on September 20, 2013, Rocket Fuel stock closed at $56.10. On day one, shareholders were filled with glee. Their positions were up 93%; not bad for a day’s work.

In early 2014, investors were praising the merits of this investment as shares tried to top $70.00 for a second time. Unfortunately this is where FUEL stock marked the exact top, and a bear market decimated the share price. A fruitful IPO quickly rotted.

I may have good news, in that there may be a silver lining to this story. I will start by outlining the bearish trend that dominated trading, and then I will outline evidence that is suggesting a reversal.

The following chart illustrates the topping process that began the share descent.

fuel rocket fuel nasdaq chart 1

Chart courtesy of StockCharts.com

A double top began to form shortly after the initial public offering. A double top is a bearish reversal pattern that appears at the top of a trend. It is marked by two consecutive tops separated by a trough. The reversal pattern is confirmed when the share price closes below the trough that separates the two tops.

In April 2014, the double top was confirmed, and the proceeding bear market ravaged share prices. Investors holding shares as the pattern was confirmed would have experienced a loss of 94% from signal generation to the lows in 2016. This is complete wealth destruction.

There is some good news and I have found reason for optimism, as the following chart illustrates.

fuel rocket fuel nasdaq chart 2

Chart courtesy of StockCharts.com

After the double top formed in early 2014, a bearish trend dominated FUEL stock. The trend, highlighted in blue, is known as a downtrend line. A downtrend line is created by connecting the peaks of the price bars. 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 a clear example of bearish price action.

The good news garnered from this chart is that Rocket Fuel stock finally broke above the downtrend line in August, 2016. The pattern of lower highs and lower lows had ceased and, in theory, this action is suggesting an end to the bear market that has prevailed.

The good news does not end there, as the following chart illustrates.

fuel rocket fuel chart 3

Chart courtesy of StockCharts.com

Rocket Fuel stock is now trading above 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 share price is above the moving average, it is bullish; when share price is below the moving average, it is bearish.

This marks the first time in history that FUEL stock has actually traded above the aforementioned moving average. This feat is a big accomplishment and should not be ignored.

We have further confirmation of a trend reversal from the on-balance volume (OBV) indicator. This indicator uses volume to compute buying and selling pressure. It is produced by cumulatively adding volume on up days and subtracting volume on down days. The data is then plotted on a chart. This indicator is used as a leading indicator, as well as to confirm the current trend.

OBV is currently making a higher high above the March peak; this confirms the current break of the downtrend and supports the break above the 200-day moving average. It also suggesting that bullish price pressure is mounting and that further gains are to be expected.

The Bottom Line on Rocket Fuel

It has been a horrendous ride for investors holding shares in FUEL stock. The past is not the focus, and all is not lost. I have outlined signals that are indicating that the worst may now be over. I will be watching and waiting for a potential setup that will give me enough information to set an appropriate trading strategy. The path of least resistance, for the time being, is higher.

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