Buy the Dip in DocuSign? Let's Look at the Charts

DocuSign surged earlier this week to new highs, but is now unwinding after earnings. Let's look at the charts after the dip.
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Without surprise, DocuSign  (DOCU) - Get Report shares are getting hit hard on Friday, down over 12% after reporting earnings.

The move comes amid a tough day in tech, with the Nasdaq down another 5% at its lows, after falling about the same amount on Thursday.

Like Zoom Video  (ZM) - Get Report, DocuSign has been a top play amid the coronavirus pandemic, as it allows companies and users to remotely and securely sign and send documents between one another.

Zoom Video reported strong earnings earlier this week. DocuSign did the same on Thursday evening, beating on earnings and revenue expectations while growing sales 45% year-over-year.

Further, DocuSign delivered third-quarter and full-year guidance that came in well ahead of analysts’ expectations.

A beat-and-raise quarter does not usually result in a 13% decline, particularly when it comes after an 8.3% decline in the prior session, (a session where shares actually fell 15% at one point). Let’s take a closer look at the charts now that the stock is down 27.5% from this week’s high.

Trading DocuSign Stock

Daily chart of Docusign stock.

Daily chart of Docusign stock.

Earlier this week, DocuSign stock ripped through the former high near $230. That move came after Zoom’s earnings. The next day, shares topped near $290 and after a volatile session, closed lower by about 1%.

The next day, shares lost more than 8%, but found support at the former high from the beginning of August.

While DocuSign stock opened above this level on Friday, it was still down about 3.5% from the prior close. It didn’t take long for the selling in tech to turn into selling pressure in DocuSign.

For now though, shares are finding support at the 50-day moving average, 61.8% retracement of the entire 2020 range, and uptrend support (blue line).

While I like to see support come into play in strong names, I’m usually not one to step in and buy when there are unwinds taking place in the market. Just earlier this week I said names like Nvidia  (NVDA) - Get Report and even the S&P 500 seemed extended. So some selling pressure shouldn't be a surprised. 

With that said though, the dip in DocuSign stock is somewhat attractive. A close below the lowest of these three support marks — the 61.8% retracement at $204.15 — could be enough to stop out active traders who are buying this dip. 

As a result, a close below this level could put the 50% retracement in play near $177.

On the upside, let’s see if we can get a rebound back up through the 20-day moving average and to the $230 level. Above potentially puts a gap-fill in play near $265. 

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