Shares of Flowserve (FLS) are ripping on Thursday. The diversified machinery company is one of the top five performers in the S&P 500, with the help of a nearly 7% surge.
This powerful move has driven the stock past layers of resistance and has set the stage for more gains. In the near term, patient Flowserve investors should consider the stock a buy on weakness.
Back in early October, Flowserve was in full breakdown mode. By the middle of the month, the stock was slicing through key support near its 200-day moving average. This steep selloff accelerated dramatically on the morning of Oct. 28 as investors aggressively sold shares in reaction to Flowserve's third-quarter earnings report. The stock opened that session with a huge downside gap as it stretched the drop from the October peak to 20%.
The steep drop immediately after earnings marked a major spike low. Flowserve has been steadily rebounding since then. As a new rally leg takes shape, the stock is leaving behind layers of support.
In the near term, Flowserve bulls should keep a close eye on the $49.60 to $48.80 area. This zone marks the upper band of a new support area. The stock's April, July, August and October highs are in this area. A dip back down to this area would offer a very low-risk entry opportunity.
On the upside, Flowserve is set up well for a retest of the 2016 highs set back in June at $52.50.