Shares of data analytics company Splunk (SPLK) have spent the last three months forming a rounding bottom base. A break above the pattern resistance level projects a 15% gain in the stock price.
In August, the uptrend line that supported a rise in the stock price over the last year was penetrated, followed by a break below the 200-day moving average. A low was established in late September, and then a series of higher lows under horizontal resistance in the $61 area completed the formation of the rounded bottom base. This resistance level is also a 38% retracement of the July high and September low range, and the 200-day moving average is currently positioned at the 50% retracement level.
The vortex indicator at the top of the chart is designed to identify changes in trend, and it has made a bullish crossover. Daily moving average convergence/divergence, which is moving above its centerline, is overlaid on a weekly histogram of the oscillator, which is making a bullish crossover. These readings reflect improving momentum, and the coordination on multiple timeframes is a very bullish signal.
The direction of money flow has been relatively flat during this consolidation period, but accumulation/distribution is back above its 21-period signal average, and the volume-weighted money flow index has crossed over its centerline, both indicating improving interest on the buy side.
A close above the $61 resistance level is a long entry point, using a trailing percentage sell stop. The pattern projects a target price measured by the distance from the bottom of the base to the neckline and suggests a move back up to the $71 area. The company reports earnings after the bell on Thursday, which should be a consideration before making a commitment to the trade.