|The weekly chart is a good place to start for some perspective. The stock advanced from 6.4 in Oct-02 to 39.21 in Jan-04. The advance made it one of the best performers on Wall Street at the time and FFIV ended its uptrend with a four week burst, going from 25 to 39.21.|
|Figure 1: Weekly chart of FFIV.|
|Graphic provided by: MetaStock.|
|The decline over the last seven to eight months retraced 50-62% of the prior advance and is finding support around 22. Notice that volume expanded during this decline as the 20-week SMA for volume (magenta line) is noticeably higher than in 2003 (red arrow).|
Figure 2: Daily chart of FFIV.
The first pattern at work is a falling price channel. As noted on the weekly chart, this decline retraced 50-62% of the prior advance. Both the retracement (50-65%) and this pattern are typical for corrections within larger uptrends.
|The second pattern at work is a large head and shoulders reversal. This pattern extends from Oct-03 to Aug-04 with neckline support at 22. The right shoulder formed from Oct-03 to Dec-03, the head from Jan-04 to Mar-04, and the right shoulder from Jun-04 to Aug-04. |
Since June, the stock has bounced off support at 22 three times and been turned back by resistance at 27 twice (gray arrows). These bounces formed a trading range that holds the key for FFIV and possibly the Networking group as a whole. A move above the July high (27.19) would be bullish and signal a continuation of the prior advance (6.4 to 39.21). Conversely, a move below the July low (21.4) would be bearish and confirm the head and shoulders reversal.
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