Shares of cloud services company Box (NYSE:BOX) have been under distribution pressure over the past few months but as a result have now arrived at a crucial technical juncture where trades are setting up with well-defined risk.
Before looking at the charts of BOX stock, allow me to say a word regarding the importance of focusing on the “risk” aspect of trading and investing. Most market participants without a profitable track record are likely in this position due to bad risk management. Bad risk management often is a direct result of focusing on the potential payoff of a trade rather than on the potential risks.
When it comes to the charts, I like to look for opportunities where I have visibly well-defined risk, i.e. where a push below support or above resistance will quickly confirm whether I am right or wrong and thus allow for a more or less unemotional reaction to the trade on my part.
BOX Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Looking at the multiyear chart of BOX stock, we see that its rise over the past few years has largely taken place in a well-defined upward-trending channel. This type of pattern allows us to clearly define potential technical support and resistance for trades.
The drop in BOX stock since its June highs thus far measures about 20%, but this has brought the stock back to the lower end of its rising channel (lower black line), which currently also lines up with the yellow 50-week simple moving average. This “confluence area” of support is well-defined around the $23-$24 area. Any meaningful break and hold below said area in this bigger-picture time frame would be concerning and likely lead to further selling.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that while BOX stock has retraced 20% since the June highs, this has merely pushed the stock back to a previous area of horizontal resistance (blue band), which now could turn into support around the red 200-day moving average.
Less risk-averse traders could try to buy the stock around this support area near $23.50-$24 while more risk averse market participants may first want to see a bullish reversal (another good buying day off support) manifest itself. Any break and hold below the $23 area at the latest is a stop loss signal while a next upside price target around $26 makes sense.
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The best thing about this current juncture in BOX stock is that should it fail and break and hold below the support area near $23, then more downside will likely open and short-side trades could set up.
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