Shares of health and fitness device maker Fitbit Inc (NYSE:FIT) rallied 2% on Wednesday along with the broader stock market. The catalyst: a no-hike decision by the Federal Reserve that led to a relief rally of sorts. Fitbit stock itself has been working higher since mid-summer in a stair-step way, and it could be a great swing trade over the coming weeks and months.
Before looking at the charts of FIT stock, however, we should talk about what the Bank of Japan and the Fed did yesterday.
The Fed on Wednesday essentially said it is ready to raise rates in December, which led to a broad-based rally across asset classes where most things (stocks, bonds, commodities) closed the day higher except the U.S. dollar. At the same time, however, the Fed also downgraded its long-term economic growth down to 1.8%. The bond market had been signaling this for some time as rates continued to drop into mid-summer.
Meanwhile, the Bank of Japan admitted that it is not satisfied with monetary policy results. So now, the BofJ will try to directly influence the yield curve to get to a target inflation rate of 2%.
Confused? For now, just understand that not a whole lot changed yesterday from a central banking perspective. At least as far as the Fed is concerned, investors are marginally warming up to the possibility of a December rate hike.
Fitbit Stock Charts
Looking at Fitbit’s charts since the company went public in summer 2015, we see that once the initial post-IPO honeymoon ran its course, the trend has been lower. However, while Fitbit stock has already rallied 40% off its late June lows, the price action since mid-summer increasingly points toward the possibility of a better move higher.
As a result, FIT stock is now for the first time ever bumping into its red 200-day simple moving average and against a diagonal resistance (purple) line. From this perspective, if the general tone of central banks doesn’t drastically change, the path of least resistance for more volatile stocks like Fitbit could still point higher for the remainder of 2016.
Zooming in on the daily chart, we see that in early August, FIT stock after its latest earnings results gapped higher and out of a multi-month consolidation phase (lower blue box). At the same time, Fitbit also managed to push back above its blue 100-day simple moving average, which has held as support ever since.
Fitbit stock then settled into another consolidation phase that so far marginally resolved higher earlier this week.
Over the past three days, Fitbit shares have traded in a tight intraday range. This ultimately could lead to a next upside target near $17.50 on a break above $16.50 or so.
From here, any notable daily bearish reversal that pushes the stock back into the trading range from August and the first half of September should be used as a stop-loss signal.
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