Internet security company FireEye Inc (NASDAQ:FEYE) has been on my radar all year as one of the better-looking stocks out there in what otherwise has been a sluggish and sloppy broader market.
FEYE stock rallied Thursday after competitor Palo Alto Networks Inc (NYSE:PANW) reported better-than-expected results for its fiscal third quarter and lifted the entire group of network security stocks.
The Street-topping report from Palo Alto led a host of analysts to reiterate their bullish case on the company’s stock price, which helped to push shares higher.
Interestingly, though, FEYE stock outperformed PANW stock on the day.
As a bigger-picture strategy — particularly when the broader market gets choppy as it has been year-to-date — I gravitate toward stocks showing relative strength, which certainly is the case for the network security stocks.
Furthermore, I believe U.S. stocks are in for a more volatile period (and likely a meaningful correction), so I want to focus on stocks that are more numb to the broader market. Growth stocks in the tech space won’t be completely uncorrelated to broader stocks should a meaningful correction take place, but they do tend to show resiliency when markets get volatile.
FEYE Stock Charts
This brings me to the multiyear chart of FEYE stock, where we see that after a nasty drop from its spring 2014 top, shares finally stopped the bleeding in early May of last year. After a sharp oversold bounce, FireEye then settled into a lengthy consolidation phase for the rest of 2014 and into early 2015, which served to build a solid bottom.
In February, FireEye stock finally regained better upside momentum and broke higher past a first line of resistance (lower horizontal line) before again settling into a multimonth consolidation phase. The rally of the past few days has marginally broken FEYE out of its most recent consolidation phase, and now FireEye looks like it could push higher in coming weeks.
Zooming in on the daily chart, we see that Thursday’s 4% rally in FEYE stock came after a two-day pause, as indicated by the two doji (unchanged) candles from Tuesday and Wednesday. Thursday’s rally was also supported by a good burst in volume — the highest single-day volume in the stock since the February breakout.
We want to see higher volume on breakout moves, so this supports the case that FireEye shares might be ready to push higher in coming weeks.
Active investors and traders could look to buy FEYE stock around the $46.50 area for a move toward $53, while any major bearish reversal would call off the near-term bullish trade setup.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
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