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Technical Analysis Lessons From FLR

In this article we will examine why FLR went from a downtrend to the start of a new uptrend. We will also look at some chart patterns and how it affects the stock.

Let us begin this lesson by having a look at the weekly chart of FLR. As you can see below, the stock drop from around $60 to $38 and then went all the way back to $60. Why did this happen and how did it went back up? From a technical point of view this stock exhibited characteristics of a stock that is about to fall and also the characteristics of a stock that is about to rise back up.

The drop started when FLR broke below a weekly uptrend line. Breaking an uptrend line can often warn investors of a trend change. If the trend line is a weekly trend line, then the breaking of that trend line is more significant as it is a break of a long term trend line.

The stock subsequently drop below the weekly 20 MA and 50 MA. Notice how the 20 MA started to slope down. This told us that the trend of the stock is down now.

A break below a consolidation can be traded and traders can short the stock when it broke below a consolidation.

The stock dropped for a few weeks and then it formed a doji pattern.

The appearance of a doji after a downtrend can often hint to a possible reversal. The reversal is confirmed when the stock trades back above the high of the doji.

Notice how the doji marked the exact bottom of the downtrend. The stock started a new uptrend after the doji. This is some powerful stuff and the next time you see a weekly doji in a downtrend, you might want to pay attention and see if a reversal might happen.

The next significant thing that happen is when FLR broke above a weekly downtrend line. Breaking above a long term downtrend line tells us that the stock is about to change trend. This is a bullish reversal pattern that often accompanies the start of a major new uptrend.

FLR also traded back above the 20 MA and has stayed above the weekly 20 MA for a long time. Since the 20 MA is still rising, the bias for this stock is still bullish and we can expect higher prices especially if FLR breaks above the current consolidation.

Having had a look at the big picture, let us now have a look at the daily chart of FLR.

When you have a look at the daily chart of FLR, you will realize the importance of trend following. The stock was in an obvious downtrend until September 2017. During that time the stock was trading below the declining 20 MA, 50 MA and 200 MA most of the time.

This is a picture of weakness and bearishness.

In September 2017, FLR broke back above its 50 MA. This is significant because it gives us a hint of the mid term health of the stock. The 20 MA gives us a short term health of the stock. When the stock breaks back above the 20 MA and 50 MA, this told investors that the stock is getting healthier in the short term and mid term.

The bullish cross hinted to the start of a new uptrend. After that, any breakout can be traded because the stock is likely to move higher.

There was a box breakout and traders could have bought the breakout and ride the trend higher.

In December, the stock broke out of an ascending triangle. The ascending triangle is a continuation pattern and traders could have bought the breakout to ride the trend higher.

Notice how the 20 MA and 50 MA were rising smoothly with the faster MA above the slower MA. When you see a railroad track type of smooth rise, this told us that the trend in FLR is up.

Now we zoom out again but this time we look at things from a Space View. The weekly chart is the bird's eye view but the monthly chart is an even bigger view and you can often glean quite a lot of knowledge by looking at the monthly chart.

So why did FLR bottomed out?

There are 3 reasons:

  1. The stock was quite oversold and it formed a nice stochastics buy signal
  2. The stock broke above a monthly downtrend line
  3. A bullish harami formed in the monthly chart of FLR

See how useful it is when you learn to do multiple time frame analysis?

At this moment, the stock is a bit overbought from a monthly point of view. But it is consolidating at the top of the congestion area on the left which may act as support. Secondly it is consolidating at the upper part of the large green candle. This is something good.

If FLR can break above this consolidation top, then it might move up higher in the future.

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