A convertible note offering that reads like microwave cooking instructions from the late 1980s has FireEye (FEYE) seeing red today, but this looks like an opportunity or, at the very least, a setup on the bullish side of the coin.
FireEye has been trading in a fairly wide range since its mid-February breakout. The range encompasses the entirety of the breakout, which is a little odd, but I view this as one big retest of that push higher. The range has been tightening a bit, which is a plus for expectations of volatility. Then again, that is a double-edged sword. You don't want to be on the wrong side of volatility. Just ask anyone long Workday (WDAY) or short Michael Kors (KORS) puts today.
Today's drop in price for FireEye has the daily chart forming a small bull flag after the push off of $40. We are doing this right at the top of the Bollinger band, which could set up the stock for a small slingshot higher on any move over $45.25. Buyers right now would need to be a little patient and willing to keep a tight stop around $43.75, maybe as low as $43.50. Momentum and trend are favorable, so I wouldn't be in a hurry to short FireEye on this news today or even under $43.75.
This move is very similar to early February when FEYE pushed above the upper Bollinger band, only to fall back for a few days before the eventual breakout. The %B, moving average convergence/divergence (MACD) indicator and relative strength index (RSI), along with the price action, are almost a mirror. The February run lasted a solid five days and even though it hurt a bit missing the first day of the breakout, there was still good upside there, so I don't see any issues waiting for a confirmed breakout. However, a reversal today would be a huge step in the right direction and might even trigger a buy.
The weekly chart gives a clearer picture on the action in the daily chart. The consolidation seen on the daily chart forms a nice cup on the weekly chart. This cup is a consolidation of the move higher that began off the October bottom. The stock rallied about $20, fell back almost $8 and is now pushing those recent highs. This is perfect symmetry for the cup depth. The chart does lack a handle here, which is worth noting, but a break over $45.25 should push FEYE back into the lower $50s before the fourth quarter.
While there is a little hesitation in the secondary indicators, this is to be expected as the price action is a consolidation at the moment. As long as the RSI doesn't push under 50 or the vortex indicator become very bearish, I would stay on the side of the bulls. A price under $40 negates any of this and puts us on the lookout for a move back to $35.
Overall, my expectations are for a breakout to occur in the next week and FEYE to be over $50 before the fall and winter holidays are even a thought.