Cloud computing and internet security company Akamai Technologies, Inc. (NASDAQ:AKAM) dropped like a rock last week following its May 2 earnings report. AKAM stock dropped 14% immediately after the report, and the selling pressure continued on Monday, May 8, with investors visibly fleeing the stock.
There’s no doubt about it — Akamai is increasingly looking oversold in the near-term, enticing investors and traders to jump in and buy this massive dip. But be warned: AKAM’s price action has yet to signal any real exhaustion, and in fact, things could get even worse from here.
Akamai is a volatile stock and often sees big up- or down-gaps following its earnings reports. Last week’s reaction was the norm, not the exception, as shares plunged lower by double digits in a flash. Investors were largely disappointed by the company’s guidance, and the growth outlook for its media delivery business.
I could spend paragraphs regurgitating the news and giving you my spin, but the reality is that price action is the ultimate arbiter, and the only thing that pays investors. The time to sell AKAM stock most recently was after the company’s earnings report in February, and it has not given anyone a meaningful reason to buy ever since.
Let’s go to the charts.
AKAM Stock Charts
As we look at the multiyear chart for Akamai, note that the stock remains in a well-defined uptrend. The black support line (currently around the $45 area), while still support, also could be the next downside price target unless the bulls quickly and forcefully step in very soon.
The bears will point out that the stock’s lower high in January and February versus the 2015 highs is a first sign of trouble.
Furthermore, they will note that with last week’s selloff, Akamai stock cleanly sliced through a confluence support area made up of the 50-, 100- and 200-week simple moving averages.
This increases the odds that the stock may have further to fall.
On the daily chart, we see that the sharp selloff from the past few days has since brought AKAM stock to an area of former horizontal support around the $50 area, while the stock is also notably extended below its 8- and 21-day simple moving averages (blue and yellow lines, respectively).
Meanwhile, the MACD oscillator at the bottom of the chart is in oversold territory as well.
While aggressive traders could attempt to nibble on the stock a little for a bounce trade back into the mid-$50s, in my eyes, AKAM stock needs a strong bullish reversal on a weekly closing basis before better odds of a trend reversal emerge.
The last such reversal took place in February 2016, and at the time, it was apparent that momentum had run out for the bears.
A long way of saying: Now is not Akamai’s time.
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