An Upswing in Citrix Systems (CTXS)

07/22/2009 12:01 am EST

Focus: STOCKS

Recently, a long-term downtrend in CTXS reversed with a channel breakout in April 2009. The lower trend line of the descending channel was breached in October 2008, dragging CTXS to a new low at $19. But the relative strength index that formed a double bottom encouraged the bullish force and lifted the stock back within the channel. The RSI (14) surged above an oversold level, rallying higher in a strong bullish area above the 50 levels.

The higher low at $20 generated positive sentiments among the traders, and as a result, the volume improved. Therefore, the channel breakout occurred on robust bullish strength, encouraging volume and the downtrend reversal indication by the average directional index (ADX) (14). As can be seen in Figure 1, the ADX (14) moved above the 20 level with high buying pressure. The moving average convergence/divergence (MACD) (12,26,9) also surged above the zero line, generating positive momentum during the breakout.


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FIGURE 1: CTXS, WEEKLY. The exclusive bullish rally converted the 200-day MA resistance to support, and thereafter consolidated.  

Thus, the bull's ride soon converted the 200-day moving average (MA) resistance to support and hit the high at $34. CTXS has retraced towards the newly formed support, indicating the possibility of consolidation.

The stock in Figure 1 is ready to breach the upper consolidation range at $34. The sideways price action formed a short-term bullish flag and pennant continuation pattern that usually breaks in an upward direction. The RSI (14) is indicating the healthy bullish strength, the MACD (12,26,9) is positive, and the ADX (14) suggests a developing uptrend. Therefore, the pattern breakout is engulfed with bullish force. The potential target is 34-24=10+34(breakout level) = 44. Coincidently, $44 is the previous high resistance in Figure 1. Hence, the current bullish scenario would very likely pull the rally higher towards resistance and meet the calculated target.

The daily chart in Figure 2 will help to chalk-out the road map for short-term traders. The picture on the daily time frame is very bullish. The bullish crossover of the moving average (circle in Figure 2) encouraged the upward journey by extending the strong support of the 50-day moving average (MA).

During the pullback rally from the fresh support, CTXS formed a bullish candlestick pattern: Three white soldiers. The yellow block in Figure 1 shows three bullish candles opening within the body of the previous candles and closing at a new high. The uptrend that was weakening after an exclusive advance rally turned stronger and resumed its journey in the developing area above the 25 levels.


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FIGURE 2: CTXS, DAILY. The three white soldiers were formed with the support of 50-day MA.

The MACD (12,26,9) is likely to undergo a bullish crossover, and the RSI (14) is indicating bullish strength. CTXS is likely to surge towards its immediate resistance at $34.41. The indicators are healthily bullish, so there is a strong chance that the previous high resistance will be violated. The three white soldiers reversal pattern would boost the bullish strength in the rally and carry the stock higher. In the worst-case scenario, CTXS might consolidate marginally near $34.41 before initiating a new bullish rally.

Thus, CTXS is a strong and healthy stock for trading. The stock might swing higher above resistance, and therefore, $35 might be a good place to enter a long trade.

By Chaitali Mohile

 

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