All Signals Point to a 'Buy' in This Stock

On Thursday, Nov. 15, FactSet Research Systems (NYSE: FDS), a provider of financial information and analytics to the investment community, declared a regular dividend, and the stock rallied 3.85% on big volume. While the $0.31 quarterly dividend, which currently yields 1.4% annually, may not seem like a big deal, it may have been good enough to place a medium-term bottom in the stock price.
The longer-term FDS chart shows a massive rally to the tune of 260% from its 2008 lows to the 2011 highs. Ever since the 2011 highs, however, the stock has traded in a wide but narrowing trading range, which for now looks like a healthy consolidation.
On the weekly chart below, note how the stock fell slightly below this consolidation phase two weeks ago, but with last week's strong intraweek reversal, has indicated that the slide may have come to a halt.

With the weekly chart looking supportive, let's delve deeper into the signs on the daily chart.
On Nov. 15, the stock traded roughly 940,000 shares. When compared with average daily volume for the past 15 days of around 340,000 shares, that is a significant increase and adds further support to the day's rally.
In terms of price, the stock left a major outside day, or engulfing candle, on the chart, with the daily candle fully engulfing the previous six candles/days. Further, it was good to see that the intraday bid on Friday, Nov. 16, kept the stock from giving up much of Thursday's gains. While we have not yet seen follow-through buying on the back of Thursday's rally, the fact that the stock managed to hold its own on Friday is good news for bulls.

Looking at the stock's momentum, we find significant positive divergence between the stock price and its stochastics indicator. Stochastics bottomed in mid-October, while the stock kept moving lower until Wednesday, indicating that downside momentum had slowed and the stock was due for at least a snapback rally.

The fact that FDS developed a strong engulfing candle at a point where momentum was positively diverging from price sets the stock up for a high-probability long-side trade in my book. While we have yet to see follow-through buying, and thus, final confirmation that a long-side trade has set up, to me the aforementioned points make a strong enough case that the trade is valid.
So what is the first potential upside target?
One way in which I use the 50-day, 100-day and 200-day simple moving averages is to gauge how far a stock has veered from its medium-term mean. In the case of FDS, the stock has moved far enough from these moving averages that a mean-reversion move may be in order. As such, a first target could be a move back to near the 50-day and 200-day simple moving averages, currently around the $94.50 to $96 area by year-end.

Beyond that, the next two upside targets would be $98, which is the 61.8% Fibonacci retracement level of the swing from the Sept. 14 high to Nov. 16 low, and above that, the $100 mark.
The combination of buy signals described above now creates a compelling trade to the long side in FDS. Major engulfing candles forming at oversold levels are a strong sign that, at least for a short- to medium-term trade, the trend has changed. In addition, when the dividend is paid on Dec. 18, it may act as further support for the stock.
Recommended Trade Setup:
-- Buy FDS at $91.50 or less
-- Set stop-loss at $87, the clearly defined low from Thursday, Nov. 15
-- Set price target at $96 for a potential 5% gain by year-end