So far 2019 has been on fire for the equity markets. The December crash in stocks was on such a negative sentiment that the flip to positive hasn’t ended yet. Oracle (NYSE:ORCL) is one of the leaders of the rally. Oracle stock came into its earnings report up 25% from the lows at all-time highs.
But this morning, investors are selling the stock because of the forward guidance. While the company exceeded the current metric expectations ORCL said that it expects less enthusiasm going forward. This is a natural reaction when the stock has been rallying into expectations of perfection.
ORCL stock is a long-term survivor and this selling from the earnings will pass. Forward guidance is less than perfect, but it doesn’t change the long-term thesis.
Meanwhile, in the conference call, ORCL co-founder called out Amazon (NASDAQ:AMZN). I find it strange to pick on a clear winner that surged out of nowhere to hijack the cloud from under the noses of those like ORCL, which were best set up to own it.
If things are going so perfectly for ORCL then why guide lower. This is not the same as me saying they are failures. It’s a pure statement on investors becoming over-exuberant with the ORCL stock price too fast going into the earnings event.
How to Approach Orcale Stock After Earnings
The stock had rallied so fast that it became a setup for failure on the earnings report. At all-time highs, ORCL would have needed to blow out the expectations on all counts, including the guidance. Since they didn’t, investors lashed out by hitting the sell button.
Luckily and to put things into context, Oracle stock was up 17% year-to-date. This dip merely brings them back into a breakout level that has been in contention since last September. This is normal price action that follows a stock break out. The bulls need to retest pivot levels for footing before they can proceed higher.
The rally that began on Christmas has been phenomenal and left several mini-levels of contention. Those act as support on the way down. Both bulls and bears usually want to fight over them again so they create price congestion, which helps the bulls.
The first such level is at $51 per share with a secondary level at $49.80. These are zones and not so much hard lines in the sand. I think of them as rubber bands, so I don’t expect perfection stops. But they do serve as excellent guides for those term traders.
Dec. 3 was an important day for the stock market last year. So for ORCL stock that coincides with the area around $47.50 per share. I expect that this level would be the strongest short-term support if the selling continues from this earnings report.
On the other hand, and fundamentally speaking, there is a reason to stay long the stock for the long term. Small moves like today’s are negligible over time. ORCL is a proven winner that survived the Dot com bubble burst and several sector-wide trend changes. So they are likely to continue executing on plans for years to come.
What also helps the bulls is that we now depend on technology more than ever before and the trend is becoming exponential. Tech begets more tech, so the demand on ORCL products and services should stay strong. There is plenty of business for all major competitors to thrive for years to come.
I don’t look for the experts on Wall Street for help. I’d rather develop and trade my own thesis. The analysts who cover ORCL are split between BUY and HOLD. And the stock is trading in the middle of their price ranges.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.