Dropbox Breaks Out on the Charts Amid M&A Speculation

Dropbox shares have been red hot as M&A aspirations heat up. Can this stock can continue its breakout from here?
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Dropbox  (DBX) - Get Report rallied 5.9% on Friday before bursting higher after the close of trading. Those after-hours gains carried over to Monday, with shares up another 4.5%.

At the day’s high, shares were up more than 7.2%. The momentum with this name has been strong lately, surprising some bulls given how sluggish it’s been over the past few months.

Following Salesforce’s  (CRM) - Get Report acquisition of Slack  (WORK) - Get Report, some investors got busy looking at other potential M&A targets.

Among that group was Dropbox, which is why the stock ran so hard on Friday. Some bulls are surprised by the follow-through price action on Monday, giving some credibility to the thesis that it very well may be a buyout candidate after all.

When we look at the technicals, the situation also is improving

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Trading Dropbox

Daily chart of Dropbox stock.

Daily chart of Dropbox stock.

The first thing I see with Dropbox’s chart is the massive zone of resistance between $23 and $23.75.

Before the coronavirus selloff hit the market in February, this area was resistance for Dropbox. Granted, it was repelled by the zone the day before equities fell apart, but the $23 to $23.75 area persisted as resistance from May through August.

Eventually, shares failed to gain traction and dropped, ultimately bottoming near $17.70 at the end of October.

A month later, it was a different story. Dropbox ripped out a rally over eight days in nine sessions. In doing so, shares were propelled over the 200-day moving average, as well as wedge resistance (blue line).

In all, Dropbox is up 23% over the past month as it gapped up and over its key resistance zone on Monday. On its first dip back into it, buyers stepped in and bid the stock back up.

From here, I would love to see shares hold over $23. Below could put a gap-fill back in play toward $22.50, but bulls would need that area to hold as support before retesting $23 to $23.75.

Over $23.75 and Monday’s highs at $24.14, and Dropbox will be in breakout territory, as it pushes to new 2020 highs.

That could put $25.90 in play, which is the 123.6% extension from the March low to the February high.