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A set of similar reversal patterns have formed on both the weekly and daily charts of the analytical software company, Splunk (SPLK) - Get Splunk Inc. Report , suggesting the stock has formed a bottom and is ready to move higher.

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The weekly chart shows the extreme volatility the stock has experienced since it became publicly traded in 2012, first rising sharply in 2013 before forming a high wick candle early in 2014 that marked the all-time high and then dropping from over $100 to just $40 in four months. It was able to hold the $40 level and begin making a series of higher highs and higher lows.

That positive price action formed an uptrend line that was broken one year later, taking the stock down to a new low in February of this year. Splunk benefited from the broader market rally that began that month and bounced sharply off its low, heading higher and returning to the $60 level.

The breakdown and the bounce, along with the recent retesting of the $60 level, have formed a rudimentary inverse head and shoulders pattern, a reliable basing pattern that often marks important lows. The relative strength index has moved out of an oversold condition, crossed above its 21-period average and continued higher, taking out its center line. Moving average convergence/divergence made a bullish crossover and has crossed above its center line. The aroon indicator, which is designed to identify early shifts in trend, has also made a bullish crossover, and it has accurately signaled turns in the direction of price over the charted period. Accumulation/distribution is tracking higher and is above its signal average, and Chaikin money flow moved into positive territory during the second half of the channel formation. These indications reflect the positive price momentum and increasing buying interest.

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On the daily timeframe, the chart shows the recent retesting of the $60 neckline resistance level as a small fractal iteration of the larger inverse head and shoulders pattern on the weekly chart. The left shoulder formed early in June, with the head developing later that month at the 200-day moving average, and the right shoulder formed this month. A strong move in the stock in Wednesday's session formed an engulfing candle that encompasses the range of the previous five sessions. It is a bullish candle made more significant by the fact that it closed near its high and at an important resistance level.

The relative strength index crossed above its center line, and moving average convergence/divergence made a bullish crossover during the second phase of the daily pattern formation, as they did during the formation of the weekly pattern, The vortex indicator, another trend indicator that has accurately called recent shifts in the direction of the short-term trend, made a bullish crossover, and the 50-day moving average made a "golden cross" above the 200-day average. On the money flow side, Chaikin money flow is on its flat line, but the money flow index, a volume-weighted relative strength measure, is above its center line, and accumulation/distribution is above its signal average.

The weekly chart pattern suggests that a long-term bottom may have been made and the stock has the potential to move significantly higher, while the price action on the smaller but similar daily chart pattern will trigger the trade. A close above the shared neckline in upper candle range is a long entry point using a trailing percentage stop.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.