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How to Trade, Inc. (CRM) Stock After Earnings

Wait for buyers to swoop in, then trade this idea on CRM stock, Inc. (NYSE:CRM) was up 2% in early Friday morning trading following last night’s earnings beat. But then CRM stock started to wiggle, and amid heavy volatility, the stock’s gains have been pared back to fractional.

How to Trade, Inc. (CRM) Stock After Earnings
Source: Shutterstock

For the record, the company reported revenue of $2.39 billion and EPS of 28 cents. Analysts were expecting $2.35 billion and 26 cents, respectively.

The price action since the opening bell has been lackluster. After opening at a new all-time high of $91, CRM stock immediately dropped amid substantial profit taking. While it remains early, it looks as if the cloud computing darling is experiencing a classic gap-n-crap.

And yet, despite this morning’s knee-jerk selling, the technical posture for Salesforce remains robust. As with all stocks perched at all-time highs, CRM is entrenched in an uptrend across all time frames. Like a good little bull stock, it rests above all major moving averages.

CRM stock chart Click to Enlarge
Source: OptionsAnalytix

Relative strength has been Salesforce’s watchword. Year-to-date, shares are up 30% besting the Nasdaq Composite’s 13% rise by a wide margin. Its outperformance is clearly illustrated in the Comparative Relative Strength (CRS) indicator shown in the lower panel of the accompanying chart.

If you’re a believer that strength more likely to beget more strength, then this is obviously a reason for continued optimism.

Post-Earnings Trade in CRM Stock

The speed with which Salesforce is losing gains this morning is definitely concerning in the short run. When traders on the Street use a solid earnings announcement and accompanying up gap as an opportunity to ring the register, it’s an indication that the positive fundamentals were more than likely priced in.

That said, with CRM stock still firmly positioned in an uptrend price, dips should be viewed as buying opportunities. Watch closely in the coming days to see if buyers materialize near the 20-day or 50-day moving averages. If and when we do see signs that this dip is getting bought, consider selling June bull put spreads to capitalize.

Right now, I’d be eyeing the Jun $82.50/$80 put spread. If CRM starts to turn higher once more and you can get 30 cents or so of credit from selling the spread, go for it.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

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