In this lesson we will learn how NET stock rose from around $116 to $167 in a short period of time giving the swing trader a potential nice profit. Sometimes an oversold stock can quickly reverse back up to make impressive gains and along the way make new highs.
This was how NET moved from $116 to $167 in a short period of time. Towards the end of September 2021, the stock had a nasty correction. But as it corrected to a price support area, the stock started to form a doji and the next day it formed a bottoming tail.
The presence of the doji showed that the bearish momentum was slowing down. The presence of the bottoming tail showed that the stock rejected to go any lower. Notice how the stock had a price support on the left. The previous high set back in July 2021 became the support that kept NET from falling.
Now let us take a look at the technical indicators. I use the stochastics and also the MACD Histogram with the MACD lines. You can see that the stochastics was clearly oversold and it dropped smoothly making a rail road track. It then gave a buy signal.
The MACD Histogram also formed a valley. Then it contracted which showed us that the bearish momentum was slowing down. Eventually the Histogram crossed back above zero which is where the MACD lines gave a buy signal. MACD buy signals can often be strong and gives a stock a nice uptrend move.
So all in all we have the convergence of a few technical concepts. They are:
Nice moves often happen when there is a convergence of many technical concepts. Which is why you need to pay attention when everything lines up nicely.
The next thing we want to loo at is the weekly chart. The weekly chart above shows that NET or Cloudfare is in a long term uptrend. It is making higher highs and higher lows in the weekly chart. Price was staying above the weekly rising 20 MA and rising 50 MA most of the time.
During the correction that we saw in the daily chart, the stock dropped to the weekly rising 20 MA. The rising weekly 20 MA can often act as support.
The 60 min chart can often give us a clue of when the stock may reverse back up. As the stock was dropping, it was trading below the 20 MA. It was also trading below its 60 min 50 MA.
NET consolidated for a few trading days and then it broke out of the consolidation. I call it breaking out of the box. As it broke outside the box, it also went back above the 20 MA and 50 MA. Notice that NET also quickly traded back above the 60 min 200 MA.
Right now the stock is still above the rising 20 MA and 50 MA. This is a picture of bullishness and one should continue to be bullish on NET as long as it stays above the rising 20 MA.
Hope this helps you to understand a bit more about how bullish reversals work.
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