With the epic market rebound entering its 10th day since forming a classic bullish hammer candle on Nov. 16, bullish price charts are beginning to multiply. While the impressive rally might be due for a breather in the short-run, the fact that it has been littered with multiple high-volume accumulation days makes higher prices going into year-end all the more likely.
So with the wounds of the post-election swoon starting to heal over, let’s take a look at one of the more compelling opportunities setting up in Salesforce.com (NYSE:CRM).
Click to Enlarge The price chart of CRM boasts a number of developments that should excite the bulls. For starters, the enterprise software company is a stone’s throw away from all-time highs. The only thing standing in the way of CRM soaring to new heights is the multi-month resistance zone at $160.
Stocks at all-time highs typically have some serious mojo — just think of the implications.
- It means every shareholder is sitting with a winning position regardless of what price they entered at.
- It means every short-seller is cursed with a losing position that is growing more painful by the day.
- It means that everyone who previously bought and sold CRM is looking on with regret for their early departure — and wrestling with the temptation of plunging right back in.
In sum, it means there are an ever-increasing amount of potential buyers for the stock … and a dwindling supply of potential sellers.
At last check, CRM had upward of 15 million shares that had been sold short, which is roughly 12% of its float — not an insignificant amount. A clean breakout over the aforementioned $160 level might serve as the death knell for a broad swath of these short sellers still clinging to the hope that CRM will fall from its lofty heights. As the bears squeal in pain and finally buy to cover their short positions, it will add additional fuel to the bullish fire, further propelling any kind of breakout.
Click to Enlarge Following Salesforce’s earnings announcement last week, its implied volatility (gold line in accompanying chart) plummeted to a new two-year low at 29%. With options on sale, buying calls looks to be one of the better ways to play the coming breakout.
If CRM breaks above $160.50, buy to open the Feb 160 call options. The calls currently are trading for $8, but they will be more expensive at the time the trade triggers. The risk is limited to the initial debit paid, while the reward is unlimited.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.