CRM Stock: Don’t Listen to Salesforce.com, Inc’s Siren Song

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Shares of cloud computing solutions provider Salesforce.com, inc. (NYSE:CRM) — after a wild ride thus far in 2016 — currently reside higher by about 5% on the year.

CRM Stock: Don't Listen to Salesforce.com, Inc's Siren SongWhile the longer-term growth story in Salesforce.com looks and sounds incredible, in the nearer term, CRM stock increasingly looks tired and capped on the upside.

Active investors and traders have a couple of ways to potentially capitalize on these overbought conditions.

When Salesforce.com reported its latest quarterly results on May 18, both top and bottom line came in ahead of analyst expectations. The company also raised its fiscal year 2017 outlook and now sees a revenue increase of about 22% on a year over year basis. The belief system around most things related to cloud computing still runs very high and this coupled with the good results led CRM stock to rally following the earnings report.

Salesforce.com (CRM) Stock Charts

To be clear, CRM stock continues to be a great trend following name, i.e a stock to buy on dips. However, particularly strongly trending cult and growth stocks such as Salesforce.com also tend to have sharp mean-reversion moves lower when they rally too sharply in the near-term.

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On the multiyear weekly chart, we see that the up-trending channel in CRM stock remains well intact and that after some marginal overshooting on the downside in February, the stock began a sharp incline and as a result is now once again near the upper end of the trading channel.

From this perspective, note that each time the stock reaches the upper end of this range as I marked with the blue circles, it tends to pause or pull back. Given the exhaustive run off the February lows I think CRM stock from here and for the time being has very limited upside potential.

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On the daily chart we see that while the rally off the February lows for CRM stock has been orderly, it also has also left behind two strong unfilled up-gaps as marked by the blue boxes and arrows.

Through this lens in particular, the most recent up-gap after the May earnings report looks to be prone for filling. The price action over the past few weeks has taken place in a tighter formation, and while we have zero bearish reversal thus far, it is conceivable that a break back below the $81 area could set in motion a better mean-reversion move lower.

Also note that the MACD momentum oscillator at the bottom of the chart is in serious overbought condition. When this indicator for CRM stock was this overbought in the past, it almost always was a cause for at least a pause or corrective move lower in the stock.

Active investors and traders could look to play CRM stock to the short side upon a confirmed bearish reversal, using the bottom of the May up-gap near $78 as a very first downside target, followed by the mid $70s.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/06/crm-stock-dont-listen-to-salesforce-com-inc-siren-song/.

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