Software company Salesforce.com (CRM) has been a good stock for active investors over the years; it provides just enough volatility yet respects its technical support and resistance levels. In recent weeks the stock has again approached a critical technical support level, just as the stock is nearing its next earnings announcement on Aug. 21. Active investors who are aware of the stock’s current positioning can take advantage of either a pre- or post-earnings move.
With just about a week until Salesforce.com reports earnings, analysts are busy filing their expectations for the quarter and outlook. On Monday Deutsche Bank reiterated its bullish case on CRM stock with a “buy” rating and a $65 price target. More analysts are likely to comment on the stock in coming days; such chatter could result in a further directional move ahead of Aug. 21.
Looking at the logarithmic multiyear chart with weekly increments, note that CRM stock has largely been trading within the confines of a clearly defined channel since the late-2012 higher lows. The support line, however, increasingly looks prone to give.
After rallying to a new all-time high in February — and thus reaching the upper end of the trading channel — the stock made its way to test the lower end of the aforementioned range in late April. Since then the stock has spent most of its time bumping slightly higher … but all of it in the lower third of the range and seemingly hugging the support line. This is visibly putting increasing pressure on the support line and thus increasing risk of an eventual breakdown.
On the daily chart note that with Tuesday’s 3.86% selloff, CRM stock marginally broke below its late-April support line. The selling on Tuesday also came on above-average volume (albeit not a massive spike in volume such as one would see after an earnings announcement).
In mid-July the stock’s 100-day simple moving average (blue) crossed below its 200-day simple moving average (red line) for the first time since 2011 and a couple of weeks later CRM stock found resistance at the 200-day moving average. If we look at the above-described picture of both the longer- and nearer-term charts, CRM stock looks likely to resolve to the downside.
Quicker traders looking for a trade before earnings could consider shorting the stock for a move toward the $50 area. More tactical traders could wait until the earnings announcement is released next week and evaluate then. If the stock should rally after earnings back above the 200-day moving average around $55.90, then you could consider a long-side trade with a target in the mid-$60s. If the downside becomes more pronounced after earnings, a price target around $44 looks probable — which would also fill the stock’s up-gap from Sept. 3, 2013.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.