Splunk Is About to Spring Higher

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.

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

More from Opinion

China's Ban on Apple's Older iPhones Is Deeply Ironic -- and Unsettling

China's Ban on Apple's Older iPhones Is Deeply Ironic -- and Unsettling

Qualcomm's Latest Notebook Chip Could Be a Sign of Things to Come from Apple

Qualcomm's Latest Notebook Chip Could Be a Sign of Things to Come from Apple

Broadcom Gains on Solid Results and Guidance: 5 Key Takeaways

Broadcom Gains on Solid Results and Guidance: 5 Key Takeaways

Huawei CFO's Arrest Shows How Unpredictable the Trade War Has Become

Huawei CFO's Arrest Shows How Unpredictable the Trade War Has Become

Waymo's Service Launch Highlights Its Lead -- and How Much Farther It Has to Go

Waymo's Service Launch Highlights Its Lead -- and How Much Farther It Has to Go