I am focusing on Finisar Corporation (NASDAQ:FNSR) stock because it has begun generating a number of technical signals suggesting that FNSR stock is transitioning from an intermediate bearish trend into an intermediate bullish one.
This is obviously good news for investors who like to buy low and sell high, because the point of maximum profit potential occurs when such developments are taking place.
The signals currently suggesting that higher prices are in development are highlighted on the following stock chart:
Chart courtesy of StockCharts.com
The technical price pattern annotated on the FNSR stock chart is a “descending channel,” characterized by price action containing a series of lower lows and lower highs. This is also the quintessential characteristic that defines a bearish trend.
I captured this pattern by connecting the peaks and troughs created by the price action. The end result is two parallel, downward-sloping trend lines. These lines are very significant because they pinpoint the parameters of the price pattern, and as long as FNSR stock was contained within them, one could only assume that a bearish trend remained in development.
In May 2017, soon after this bearish trend began, a “death cross” was generated as a result of the 50-day moving average crossing (hence the name) below the 200-day moving average. It implies that a bear market is in development.
The moving averages remained in bearish alignment until August 2018, when the 50-day moving average crossed above the 200-day one. This is called a “golden cross,” and it implies that a bull market is in development.
The creation of this golden cross was well timed, because on August 23, 2018, Finisar stock broke above the trend line that defined the descending triangle. This event is suggesting that the bearish trend had come to an end, with the creation of a golden cross serving to reinforce this development.
These coinciding indications suggest that higher FNSR stock prices are now likely to prevail. But before I get too enthusiastic about what the future may bring, I am still waiting on one more signal to put a final stamp of approval on this possible development. That signal is the moving average convergence/divergence (MACD) indicator.
Chart courtesy of StockCharts.com
The very influential MACD indicator uses the crossing of a signal line in order to distinguish whether bullish or bearish momentum is influencing a stock’s price action. This is very important information because Finisar stock cannot sustain a move in either direction unless the applicable level of momentum is supporting it.
Bullish momentum implies that a stock is geared toward higher prices, while bearish momentum implies the opposite. This is why the wave structure highlighted on the chart above has coincided with the signals generated by the MACD indicator.
The wave structure consists of impulse waves (green lines) and consolidation waves (purple lines). Impulse waves capture the period in a bullish trend when a stock stages a sustained and progressive move toward higher prices, while consolidation waves show the point in a bullish trend when a stock corrects and refrains from advancing.
The descending channel doubles as a consolidation wave, and its completion is suggesting that a sustained move toward higher prices (via an impulse wave) is now in development.
This idea that a sustained move toward higher FNSR stock prices is now in development has yet to be confirmed by the MACD indicator.
In order to confirm this idea, a bullish MACD cross is needed. Unfortunately, the MACD indicator is in bearish alignment, but there is a silver lining. The good news is that lines that create a MACD signal are currently converging, and a bullish signal is possible in the months ahead.
There are a number of indications already suggesting that Finisar stock is primed for a move toward higher prices. I am waiting upon one more signal, generated by the MACD indicator, that I believe will confirm that a sustained move toward higher FNSR stock prices is in development.