FFIV: It’s Time to Deep-Six F5 Networks

Shares of Internet traffic management company F5 Networks, Inc. (NASDAQ:FFIV) dropped hard last week after the company reported weaker-than-expected fiscal first-quarter results. This weakness in FFIV stock has also damaged the near- and intermediate-term pictures on the charts and now offers active traders and investors a chance to lean short on FFIV with well-defined risk and reward.

FFIV: It's Time to Deep-Six F5After the close of trading Jan. 21, F5 Networks reported Q1 revenues of $462.8 million, which fell shy of estimates for $467.25 million, though it was higher than the $406.5 million recorded in the year-ago period. Earnings also were up, to $1.55 per share, and that figure did beat the consensus mark of $1.49.

The real issue came to revenue guidance; FFIV is looking for $465 million to $475 million, whereas the Street had been looking for about $479 million.

However, F5 did announce that it would increase its share buyback program by an additional $750 million, which should instill some longer-term confidence.

FFIV Stock Charts

Looking at the multiyear weekly chart of FFIV stock,we see that a clear line of resistance is in place, made up of the tops from early 2011, March 2012 and December 2014. Because “triple tops” are more myth than fact through the lens of technical analysis, the underlying structure of the stock’s longer-term chart remains constructive, which is to say that ultimately a push past the black resistance line will take place.

At the same time, F5 Networks has a well-defined double-bottom made up of its lows (blue bubbles) in September 2011 and July 2013, around the $70 area.

ffiv stock charts weekly
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With the above picture in mind, however, my focus for now is on the nearer-term chart.

When FFIV stock began trading on Jan. 22 after the prior night’s earnings report, it dropped 10% on a big surge in volume. The day’s drop also pushed the stock back below its 200-day simple moving average (red line) as well as below its support line and below from 2013.

This type of breakaway/breakdown gap, particularly if it breaks support on a good surge in volume, typically sees follow-through selling in the weeks ahead. Over the past couple of trading days, FFIV stock has staged a little oversold bounce but so far remains below the aforementioned broken support levels.

ffiv stock charts daily
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This now sets up a trade where active traders and investors could look to sell short FFIV stock on the next bearish reversal day. A bearish reversal day would come either in the form of a failed intraday rally or an absolute weakness day where the stock gaps lower and closes near its lows on the day.

Ideally this bearish reversal move takes place around the $115-$118 area, which could set up a trade with a price target around the $100 mark.

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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.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/f5-networks-inc-nasdaq-ffiv-stock-short/.

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