After a few monstrous years of high growth, shares of cloud computing solutions provider Salesforce.com, Inc. (NYSE:CRM) are lower by 9% for the year-to-date. While I strongly believe in cloud computing and just about any business that Salesforce currently is in, as well as CEO Marc Benioff’s vision for his company and this industry, CRM stock is currently undergoing an important and healthy pause.
With the price action of the Last few days, traders and investors alike may have received the second best buy signal for the stock for 2016.
When I last mused about the state of Salesforce on June 8, I pointed to the near- to intermediate-term overbought conditions.
At the time, CRM stock had once again reached the upper end of its multi-year trading range and I offered that the stock could slip back into the $70 area before a better buying opportunity may arise.
Both the downside price target and the possible buying point were reached earlier this week, so it’s time for an update on this cult stock.
CRM Stock Charts
A simple yet effective way to force oneself to buy low and sell high is in stocks that have well-defined, multi-year up- or down-trends. As you can see on the multi-year weekly chart below, CRM stock fits this description to a T.
At the broader market lows in February, CRM stock had reached a buying spot as it had mean-reverted back to the lower end of its multi-year up-trend. By June, Salesforce stock had once again roared back to the upper end of this range. And as of this week, the recent selling spree in CRM stock has pushed it back to the lower end of trend.
While it is always possible that a trend ultimately ends and Salesforce stock falters much lower; historically speaking, odds favor buying some CRM stock here, if only for a trade. This is in stark contrast to the low odds of success if one were to chase the stock higher at the upper end of range, such as where it was in June and July.
On the daily chart, we see that on Wednesday Salesforce stock gapped lower, which likely was a result of rumors that the company was among possible suitors to buy troubled social media company Twitter Inc (NYSE:TWTR). By Thursday morning, those ‘rumors’ had subsided and the stock quickly gapped higher. When approaching this through the lens of investor psychology, the down-gap and rejection move over the last two trading days by CRM stock essentially tells us that the bears had no stamina and quickly dissipated.
Active investors and traders now have very well defined support (i.e., Wednesday’s intraday lows near $67, as a last resort stop) against which to lean on the long side for a trade. From here, its next upside targets through at least a multi-week range are $76, followed by $80.
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