Shares of cyber-security firm Palo Alto Networks Inc (NYSE:PANW) rallied last week on Friday following the company’s latest quarterly earnings report. The company reported good numbers all around and investors were so pleased that the stock gapped up Friday morning and rallied more than 10% on the day. On the charts, this left behind, on Friday and for the week, a notably bullish mark that could have set a new leg higher in motion.
In this column I often highlight the importance of respecting when a stock gaps higher or lower, particularly on the back of earnings reports. Barring any quick reversals of the up- or down-gap, these gaps represent investors making a strong statement, which in turn can lead to fresh momentum moves up or down that last for days, weeks, months or longer.
In the bigger picture I see little not to like in PANW stock, as the trend in and need for cyber security services should continue to increase as ever more business is conducted online and our dependency on a safe online environment is just about impossible to ignore.
PANW Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Looking at the multiyear weekly chart, we see that PANW stock, after topping out in the summer of 2015, then slipped into a consolidation phase that by May 2017 had it correcting from those highs by more than 45%. Last Friday’s rally, however, marginally pushed the stock above the diagonal resistance line (purple dotted) as well as above its blue 100-week simple moving average.
Through this longer-term lens, that is not something the bears should ignore.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that PANW stock made a first bullish move following its late-May earnings report — the stock gapped higher and out of a multimonth sideways consolidation phase. This also pushed the stock off the lows and put active investors on alert that more upside movement may be coming down the road. The stock then slipped right back into consolidation mode but did just about hold the lows of the June 1 breakaway gap as well as the blue 100-day simple moving average on the chart.
Last Friday’s breakaway gap thus was the second of this type since early June and also led to a break above the consolidation phase highs from the past few months, as well as past diagonal resistance.
Barring any quick bearish reversal of the post-earnings rally from Sept. 1, PANW stock now looks poised to continue this ascent in coming weeks or months and the $160 area could be used as a first upside target. Any strong bearish reversal would be a clear stop loss signal from a swing trading perspective.
Check out Serge’s Daily Market Outlook for Sept. 5.
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