Trade of the Day: VMware, Inc. (VMW) Stock Is in an Attractive Trend

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Shares of virtualization technology company VMware, Inc. (NYSE:VMW) dropped 2% last Friday following the company’s latest earnings report. Some bearish traders I spoke with on Friday were quick to call this the top for VMW stock, yet in my eyes the intermediate-term up-trend remains firmly intact and the stock is still higher by 21% year-to-date. All else being equal, last Friday’s dip may offer traders a better opportunity to buy the stock again.

Trade of the Day: VMware, Inc. (VMW) Stock Is in an Attractive TrendSpecifically, when VMware reported its Q1 earnings after the close of trading last week on June 1 it beat both top and bottom line expectations. More importantly, however, the company raised its top- and bottom-line forecast for the full year.

Although a raise in full-year guidance typically tends to be a positive for a stock, in this case investors decided to take some profits off the table.

Before digging into the nearer-term charts let’s first gain some perspective on VMW stock through the multiyear lens.

VMW Stock Charts


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On the weekly multiyear chart, we see that once the stock topped out in April 2012 it began to struggle, and after a double top confirmation two years later in 2014 the bulls could no longer hold the stock. By early February 2016 the stock had fallen more than 60% from its 2012 highs, but that also served as a key inflection point. Ever since the stock has climbed higher in a steady and well-defined up-trending channel.

From a momentum perspective, in this time-frame the stock is now well overbought and has been so for the past eight months, yet the stock continues to rise. Instead of getting all bearish about a stock however from a simple momentum oscillator perspective, let’s realize that this can also simply be viewed as being the result of a strong stock.

Nevertheless, the 125% rally of the February 2016 lows now has VMW stock bumping into the diagonal resistance line connecting the 2012 highs and the 2014 lower highs. This too doesn’t have to put the stock into a tailspin, but rather may offer perspective that if and when the stock can clear and hold above the $100 mark, it may be ready to push back toward $120 over time. It is important however to keep in mind that this is the intermediate to possibly longer term angle.


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On the daily chart, we see that the sell-the-news reaction in VMW stock last Friday came on the back of rally into the report. So far the pullback in the stock has merely brought it back to the lower end of its range, which also coincides with the yellow 50 day simple moving average.

The great thing about the setup here in VMW stock is that we have a series of clearly defined lines of support where we can watch out for potential bullish reversals. The first area is the 50-day, followed by the blue 100-day and lastly if push came to shove then the red 200-day moving average may offer support.

Instead of blindly jumping into VMW stock now, in my eyes a better reward-to-risk opportunity will provide itself once the stock has given a clear bullish reversal, i.e. a strong rally off one of the aforementioned trend support lines. If and when this takes hold, then the net upside target becomes the $100 area.

Check out Anthony Mirhaydari’s Daily Market Outlook for June 5.

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