Affirm Holdings, Inc AFRM surged over 10% on Friday after printing a bullish Marubozu candlestick on Thursday, which suggested the stock was likely to trade higher.
The steep rise caused Affirm to negate a downtrend in which the stock had been trading since Aug. 16 by printing a higher high above the most recent lower high.
If the stock is about to begin trading in an uptrend, a retracement will come over the next few days, which may provide a solid entry point for bullish traders.
An uptrend occurs when a stock consistently makes a series of higher highs and higher lows on the chart.
The higher highs indicate the bulls are in control while the intermittent higher lows indicate consolidation periods.
Traders can use moving averages to help identify an uptrend, with rising lower time frame moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term uptrend.
Rising longer-term moving averages (such as the 200-day simple moving average) indicate a long-term uptrend.
A stock often signals when the higher high is in by printing a reversal candlestick such as a doji, bearish engulfing or hanging man candlestick.
Likewise, the higher low could be signaled when a doji, morning star or hammer candlestick is printed. Moreover, the higher highs and higher lows often take place at resistance and support levels.
In an uptrend, the "trend is your friend" until it’s not, and in an uptrend there are ways for both bullish and bearish traders to participate in the stock:
- Bullish traders who are already holding a position in a stock can feel confident the uptrend will continue unless the stock makes a lower low. Traders looking to take a position in a stock trading in an uptrend can usually find the safest entry on the higher low.
- Bearish traders can enter the trade on the higher high and exit on the pullback. These traders can also enter when the uptrend breaks and the stock makes a lower low, indicating a reversal into a downtrend may be in the cards.
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The Affirm Chart: On Sept. 6, Affirm printed a doji candlestick when it bounced up off the $21.34 level, which was an indication the temporary bottom was in. Between Wednesday and Thursday, Affirm spiked up over 6%, which caused the relative strength index to cross above its average, which indicated bullish momentum was increasing.
- If Affirm closes the trading day near its high-of-day price, the stock will print a bullish kicker candlestick, which could indicate higher prices will come again on Monday.
- If the stock closes the trading session with a long upper wick, it could indicate the temporary high has occurred and a retracement to the downside is on the horizon.
- Bullish traders will eventually want to see Affirm print a higher low above $22, which could also provide a solid entry point for those not already in a position.
- Bears want to see the stock reject at the 50-day simple moving average and then for the stock to run into a group of sellers to knock it down under the $22 level, which could indicate the recent price action was a bull trap.
- Affirm has resistance above at $32.29 and $38.82 and support below at $26.06 and $19.96.
Photo courtesy of Affirm.
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