Salesforce.com (CRM) - Get Report gapped lower at the open on Monday, trading below its 200-day simple moving average at $149.87. Staying below this important moving average indicates risk to its monthly, semiannual and annual value levels at $143, $139.59 and $123.65, respectively, where the stock is a buy. (Shares closed down 4.17% to $145.10.)
Salesforce has been losing technical momentum since the week of May 17 and is below its 200-day SMA for the first time since Jan. 4. The provider of cloud computing software solutions for customer relationship management (CRM) is a pure momentum stock as its P/E ratio is elevated at 100.94 and it does not offer a dividend, according to Macrotrends. This makes its daily and weekly charts important to understand.
Analysts expect Salesforce to earn 61 cents a share when it reports after the closing bell on Tuesday. The company has beaten estimates in eight consecutive quarters. This indicates that analysts' upgrades and downgrades will be key to pre-earnings volatility.
TheStreet indicates that investors are expected to "hone in on billings as an indicator of how the company's own sales could grow over the next several quarters." Additional comments are provided by AAP portfolio analyst Jeff Marks.
The Daily Chart for Salesforce
Courtesy of Refinitiv XENITH
The daily chart for Salesforce shows that the stock is in correction territory 10.6% below its all-time intraday high of $167.56 on April 29 when it crossed below its 200-day simple moving average at $149.87. The stock is still up 9.4% year to date and in bull market territory 31.9% above its Nov. 20 low of $113.60. The close of $136.97 on Dec. 31 was an important input to my proprietary analytics and its semiannual and annual value levels remain at $139.59 and $123.65, respectively. The close of $158.37 on March 29 was an important input to my analytics and the quarterly risky level is above the chart, seemingly unreachable at $172.55. The close of $151.41 on May 31 is the latest input to my analytics and its value level for June is $143.
The Weekly Chart for Salesforce
Courtesy of Refinitiv XENITH
The weekly chart for Salesforce is negative with the stock below its five-week modified moving average of $154.99. The stock is well above its 200-week simple moving average or "reversion to the mean" at $103.16. The 12x3x3 weekly slow stochastic reading is projected to decline to 32.40 this week down from 42.92 on May 31.
Trading Strategy: Buy weakness to its monthly, semiannual and annual value levels at $143.00, $139.59 and $123.65, respectively and reduce holdings on strength to the 50-day simple moving average at $158.36.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March, April and May. The close on May 31 determined the monthly level for June. The quarterly level was changed at the end of March. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.