Monday, January 16, 2017

FIS in Wave 5 on Monthly But Still Has Significant Headroom

A horizontal consolidation pattern characterized the stock performance of Fidelity National Information Services, Inc. (NYSE: FIS) for the entire fourth quarter of 2016.  The pattern is showing signs of an impending breakout, however.  To understand the overall trend and determine where FIS could head, we'll start with a look at the monthly chart. 

FIS Monthly Chart
On the macro level, the current uptrend started with a strong monthly reversal candle in November 2008 at the peak of the Financial Crisis.  After a lackadaisical first wave that barely exceeded the pre-crisis high, Wave-3 took off and, depending on your interpretation of the wave count, ended in either last 2015 or mid-2016.  The date of it's ending doesn't much matter for our trading horizon, however what's important here is that the overall long-term trend is up, and there is still a full Wave-V to go - a Wave-V that is virtually unrestricted due to the length of Wave-III.  The channel boundaries in the up-trend suggest the current consolidation could run a bit longer, but there are no downward pressures of significance on the chart other than a bearish divergence in the RSI(9) oscillator that is typical of the top of one of the impulse waves.

FIS Weekly Chart
The weekly chart improves the picture and starts to approach our trading horizon.  Here we can see the development of the last major impulse wave on the monthly chart, and on the weekly it's clarified into a 5 sub-wave pattern.  This pattern is more relevant to us since the potential for the final impulse wave to end in the short-term greatly increases. That doesn't mean that wave-5 can't extend into a second impulse, however we don't yet have evidence that it will happen.

Again notice the consistent bull channel that runs the entire length of this impulse wave.  Right now, we're trading near the center of that channel, although we are resting on a shorter term horizontal resistance line that's held for the last six-months.  A breakout from that resistance line will be an excellent indication that Wave-v is in progress, and would be a very good long entry point if confirmed on the daily chart.

FIS Daily Chart
So now we know that the long-term trend is up (based on the monthly chart), and the intermediate term trend is up but potentially running out of steam (based on the weekly chart.)  Let's now look at the daily chart since it's on this time frame that we look for our setups.

This horizontal consolidation that's been running since July 2016 forms a narrowing wedge pattern, but the channel itself is ill-suited for swing trade setups.  Price has not oscillated between the extremes with any consistency.  The much shorter term channel - in magenta - does show more promise since there were three touches to both support and resistance since late November 2016.  Last Thursday's candle was a retest of support, and that was rejected on high volume.  Even though the candle is red, that hammer was a very bullish indicator.

This, in fact, is the setup we are looking to take.  Friday's candle offered confirmation of the price rejection, at least in the short-term.  Going long just above the high of Friday's candle with a stop below the rising support line offers a good setup.  The rising resistance line offers a good exit opportunity, although we may also want to allow at least half of the position to continue to run since Wave-v should initiate soon.  It would be nice to catch that wave if we see the setup in time.

Be aware that FIS reports earnings before the open on 7 February. They are expected to trade ex-dividend in late March, so that should not have any bearing on our trade horizon.  Do be aware of the earnings date, though, if we attempt to ride the crest of Wave-v.

Happy Trading.

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