Fletcher Building Limited (ASX:FBU) is involved with building products, concrete, steel, construction, property and housing and distribution.
The long-term chart of FBU is quite simple. From 2001 to July 2007, the stock experienced a long-term bullish trend that drove the price from $1.75 to $12. It’s a 585% gain in 6 years.
However the stock has been retracing a large part of this gain. From July 2007 and the historical high price posted at $12, it has declined by 61% to reach a recent low at $4.66 on July 16 this year.
The stock has found some support there and has already bounced back. We think there is more to come. As this stock is trendy and is obviously uncorrelated with indices, the momentum indicators suit well its technical analysis.
Those indicators are well oriented. They turned bullish in the first fortnight of July and strengthened during the past few weeks. Therefore there is a conjunction of signals that argue for a further price development on the upside.
The MACD has already crossed above its signal line. It has also crossed above the zero line, which is a confirmation that there is a medium-term bullish trend. Why does it strengthen the existing bullish signal?
Well, traders also watch for a move above or below the zero line because this signals the position of the short-term average relative to the long-term average. When the MACD is above zero, the short-term average is above the long-term average, which signals upward momentum. The opposite is true when the MACD is below zero. Consequently the zero line often acts as an area of support and resistance for the indicator.
The Momentum indicator which is a measure of the velocity of price movement is also positive. It bottomed in July, turned upward and has been rising since, crossing above its 100-level signal line in the first fortnight of August. The trend is there, and it may remain your friend as the overbought configuration has not been reached yet (according to the RSI). It means that the trend is likely to continue before any potential significant corrective pull back.
Moving averages are used to emphasize the direction of a trend and to smooth out price and volume fluctuations, or “noise”, that can confuse interpretation. Typically, upward momentum is confirmed when a short-term average crosses above a longer-term average. Last month, the 10-day moving average (in blue) crossed above the 50-day moving average (in red). Today this 10-day moving average acts as the first support to the price action.
The current correction of the one-year bearish trend is expected to continue on medium-term perspective. The first intermediary resistance line is the 23.6% Fibonacci retracement level around $6.4 (since the stock has been bouncing back the high posted is $6.19). If the trend goes on, the most important levels to watch will be $7.4 and $8.3, which correspond to the 38.2% and 50% ratios.
Good Investing,
Gabriel
