These 3 Cyber Security Stocks Have Room to Run
Stocks in the cyber security space saw deep pullbacks in the last half of 2015 but have managed to recover a good percentage of those losses in the first half of this year The rally in the sector does not look over, and the trend remains higher.
Here are three stocks whose weekly charts suggest they are preparing to begin a second phase of their earlier moves higher. Note that this analysis uses weekly charts, and trades that use weekly charts require deeper stops and consequently smaller position sizes.
Cyber-Ark Software
Cyber-Ark Software (CYBR) - Get Report shares dropped from a high of $74 in June last year to a low of $32.50 in February this year. They have managed to bounce off their low and make a series of higher highs, retracing 38% of the sharp decline.
In June this year, the 50-day moving average made a golden cross over the 200-day average, and last week the stock closed above the first level of Fibonacci retracement. Moving average convergence/divergence made a bullish crossover at about the same time that the stock broke above the downtrend line drawn off the 2015 declining highs and, along with the relative strength index, has moved above its centerline. The vortex indicator, which is designed to identify early shifts in trend, has also made bullish green-over-red crossover, confirming the positive price movement.
The most compelling feature of the three charts is the increasing positive money flow. These stocks may have become overvalued, and that could be the reason for the selloff, but apparently buyers are seeing value at current levels, and now the stocks appear to be under accumulation. Chaikin money flow on the Cyber-Ark chart has moved steadily higher since breaking above its center line and is positioned well above its 21-period average, and the money flow index, a volume-weighted relative strength measure, is tracking along the upper end of its range.
FireEye
The same type of pattern and technical conditions are in place on the FireEye (FEYE) - Get Report weekly chart that were in place before the stock saw a move that took it from $35 to $55. In the last half of 2014, the stock began making a series of lower highs above horizontal support, compressing Bollinger bandwidth to a level that often precedes a volatile move. The same process has been occurring again in the first half of this year.
Moving average convergence/divergence has made a bullish crossover, and the relative strength index is advancing on its center line. The aroon indicator is another indicator designed to spot shifts in trend, but it uses the number of days since a particular high, or time rather than price, and it is making a green-over-red line crossover, as it did prior to the breakout last year. Important to note is that the money flow indicators are tracking higher, in support of the positive price indications on the chart.
A bottoming pattern is forming on the Fortinet (FTNT) - Get Report chart similar to one that signaled the bottom of the 2015 decline in stock price earlier this year. It is a three-period morningstar candle pattern, consisting of a large dark candle followed by a narrow opening and closing range candle and completed by a large white candle, and it represents a transition from bearishness to bullishness. This formation is usually seen at market bottoms but can also be interpreted as a continuation pattern. The current morningstar is forming immediately after a moving average golden cross and directly under the 38% retracement of the stock's 2015 high and 2016 low. The price momentum indicators are tracking higher, the aroon trend indicator has made a bullish crossover, and money flow suggests this stock is also under accumulation.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.