It's been a stellar year so far for Oracle (ORCL) -- shares of the $150 billion database software giant have rallied more than 21% since the first trading day in January. But the same can't be said for the last couple of months: Oracle has stumbled around 8% from its highs back in September. And now, shares look likely to continue their orderly decline.
That's because Oracle is currently forming a head and shoulders top. The head and shoulders is probably one of the most well known technical setups out there; it's formed by two swing highs (the shoulders) that are separated by a higher high (the head). The sell signal comes on a move through the neckline level. Despite the popularity of the pattern, it still works: a recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant."
Ultimately, ORCL needs to break the neckline for the sell signal to trigger, but even in the best case, this stock has switched from moving higher in an uptrend to slugging lower in a downtrend. Either way, this isn't a stock that looks attractive to own right now, and momentum has indicated that since the uptrend broke back in early September. Opportunistic buyers should wait for a change in trend before putting their money on the line.
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