Here's Why Salesforce Is a Short

Salesforce shares dropped sharply at the beginning of the year -- and it could happen again.
By Robert Moreno ,

Shares of Salesforce.com (CRM) - Get Report , an undisputed leader in the cloud marketing space, have experienced some exceptional volatility over the last six months, and the technical indicators are suggesting that it may be setting up for another volatile move in price.

The stock dropped over 34% from its December high last year to its February low this year. At that point, it was able to bounce sharply, gap higher and then rally back above its previous highs. In June, however, it has underperformed the broader market by about 5%, and the technical indicators are in the same bearish alignment that they were in before the January drop.

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The relative strength index moved out of an oversold condition early last month and has crossed below its centerline, daily moving average convergence/divergence overlaid on a weekly histogram of the oscillator is crossing below its centerline on both timeframes, and the aroon indicator, designed to identify early shifts in trend, has made a bearish red-over-green line crossover. These readings are very similar to the condition of the momentum indicators at the end of last year. On the money flow side, the accumulation/distribution line is below its 21-period average, and Chaikin money flow is well into negative territory, as they were prior to the sell-off.

If the stock is scheduled for another decline, it will most likely be triggered by a break below the four month uptrend line currently in the $78 area. A lower candle close below this support is a short entry point using a tight trailing protective buy-to-cover stop. All short positions are speculative by nature, and the primary goal is to protect capital.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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