Shares of software company Intuit (NASDAQ:INTU), although still higher by about 28% year-to-date, have fallen about 15% from their highs set back in the August/September period. Many signs on the chart point to further weakness ahead for INTU stock.
Software stocks as a group had a sharp rally starting in October. A notable bearish reversal on Dec. 2 however left its mark not only on the group ETF, but on many individual stocks within the group.
As I so often discuss in this column, the relative strength/weakness of a stock versus its sector or group is an important part of a more holistic approach to the markets, i.e. one that goes beyond just chasing stocks higher based on simple chart breakouts.
To wit, shares of Intuit have shown serious relative weakness versus its peers since the September/October period. This stock did not participate in the broader rally that its peers had from October into early December.
INTU Stock Charts
To put all of this into some perspective let’s look at a multi-year chart. Here we see that INTU stock over the past few years moved higher in a well-defined broadening range pattern.
In the second half of the summer, the stock had once again reached the very upper end of this range, where it promptly was rejected. So far the stock has pulled back to its yellow 50-week simple moving average.
While it could find some temporary support here, odds are it eventually breaks lower and toward the low end of the bigger range. Note that currently the low end of said range also coincides with the blue 100-week moving average.
On the daily chart note that since topping out in the August/September period, INTU stock has systematically broken below near-term support levels and marked the chart with plenty of bearish reversals and lower highs.
Over the past couple of months the stock’s medium-term moving averages have also begun to turn lower. All of this provides plenty of overhead resistance for the stock, even on any strong counter-trend bounces. Overhead resistance is strongest between $260 – $270, which is to say that any short-side bets on the stock should be stopped out on a break above the upper end of this range.
On the downside the next target is $237. As an alternative to shorting the stock one could cautiously buy the January 250-240 bear put spread.
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