FUEL Stock: A Bull Is Born
Rocket Fuel Inc (NASDAQ:FUEL) stock has been on a perpetual slide for many years now, and anyone who has invested in this company can attest to the damage this bearish trend has caused. At one point, Rocket Fuel stock was trading as high as $71.89, before this punishing trend pushed price to a low of $1.70. I am delighted to say that after Rocket Fuel shares have experienced a 97.6% loss, there are now indications that a bottom has finally been formed.
My views are generated using technical analysis. This method of analysis is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. I have been using this method for nearly two decades and have found great success in doing so. My analysis begins and ends with the price chart, and the only factors that change are the indicators, and the scaling that is used.
The following Rocket Fuel stock chart illustrates the bearish trend that contained price, and the positive price action that is suggesting that a bottom is in place.
Chart courtesy of StockCharts.com
Soon after Rocket Fuel stock peaked in 2014 at $71.89, a bearish trend developed. This trend carried the quintessential characteristics of a bearish trend, in which lower highs and lower lows dominated the chart landscape.
This bearish trend is effectively captured using a downtrend line. This downtrend line is created by connecting the peaks on the price chart. As long as Rocket Fuel was trading below this trend line, it was safe to assume that lower prices were set to prevail. This downtrend line that effectively contained price was tested on numerous occasions, and it was not until August 2016 that Rocket Fuel stock was finally able to overcome this stubborn level of resistance.
The breakout that is highlighted on the price chart illustrates when Rocket Fuel was finally able to break above the bearish trend line. This feat served to suggest that the bearish trend had finally concluded and this opens the door for a bullish trend to commence.
Unfortunately, a new low was created in the months that followed, but this new low was very constructive. Rocket Fuel shares managed to trade back and test from above the level of resistance that contained price. This backtest is not an uncommon event; it serves to reinforce the notion that the bearish trend has finally concluded and that the previous level of resistance is now a new level of support.
Upon completing this backtest successfully, Rocket Fuel shares have staged quite an impressive advance, an advance that is supporting the view that a sustained bottom has been put in place.
The following Rocket Fuel price chart illustrates another indicator that is reinforcing the notion that a bottom is in place by suggesting that a bull market is now in development.
Chart courtesy of StockCharts.com
The entire time the downtrend was in place, a death cross was confirming that a bear market was still in development. A death cross is a bearish indicator that is produced when the faster 50-day moving average (highlighted in blue) crosses below the slower 200-day moving average (highlighted in red). This indicator is popular among traders, and they use to confirm that a bear market is in development. I have found it always wise to tilt my strategies in the direction suggested by this this indicator.
After the breakout occurred in August 2016, the appreciation in price set the wheels in motion for the moving averages to converge, and the death cross was on the verge of averting. Just as a bullish indicator was going to generate, a sell-off quickly ensued and the bearish indicator remained intact. It is as if Rocket Fuel wanted to test this downtrend line from above before it would allow a bullish indicator to generate.
Only a few weeks ago, the bearish indicator gave way to its counterpart, the golden cross. This indicator is the exact opposite of a death cross and it carries the bullish implications that a new bull market is now in development.
The confluence of a breakout and successful backtest, which was then confirmed by a golden cross, is the necessary indication to suggest that a bottom has finally been formed in Rocket Fuel stock and a bull market has commenced.
I would now be on the lookout for constructive price action that I could use to set up a potential trading strategy.
Bottom Line on Rocket Fuel Stock
I am bullish on Rocket Fuel stock because there are numerous indications that are suggesting that the bear market that ravaged the share price has finally concluded and that a new bull market has begun.