Cloud software giant Salesforce.com (CRM - Get Report) reports second-quarter earnings after the closing bell on Thurs., Aug. 22, with the stock below its semiannual pivot at $150.80 and the risk of a "death cross" on a negative reaction to results. The stock opened Thursday below the pivot and is now at around $147.77. Since the stock has a negative weekly chart, my call is to sell strength to its $150.80 pre-earnings. A "death cross" forms when the stock's 50-day simple moving average falls below the 200-day simple moving average to signal that lower prices will likely follow. For CRM, the 50-day and 200-day SMAs are at $151.57 and $150.76, respectively.
Salesforce closed Wednesday at $147.38, up 7.6% year to date and in bull market territory 29.7% above its Nov. 20 low of $113.60. The stock is also in correction territory, 12% below its all-time intraday high of $167.56 set on April 29.
Analysts expect Salesforce to earn 47 cents per share when it reports after the closing bell on Thurs., Aug. 22. The company has beaten estimates in nine consecutive quarters. The provider of cloud computing software solutions for customer relationship management (CRM) is a pure play on the technicals as its P/E ratio is elevated at 92.10 and it does not offer a dividend, according to Macrotrends.
Salesforce.com has been gaining through acquisitions and international growth -- important parts of its business plan. This report describes three key themes to watch.
Salesforce is a holding in Jim Cramer's Action Alerts PLUS member club.
The Daily Chart for Salesforce
Courtesy of Refinitiv XENITH
The daily chart for Salesforce shows that the stock had a 32% bull market gain from its Nov. 20 low of $113.60 to its all-time intraday high of $167.56 set on April 29. This gain is being consolidated since then. The close of $136.97 on Dec. 31 was an important input to my proprietary analytics and its annual value level remains at $123.65. The close of $151.73 on June 28 was an input to my analytics and this resulted in a semiannual pivot at $150.80 and a quarterly risky level above the chart at $181.44. The July 31 close of $154.50 was input and resulted in a monthly risky level for August at $165.78. Note how the 50-day and 200-day simple moving averages are converging at $151.57 and $150.76, respectively. If the 50-day falls below the 200-day, a "death cross" will be confirmed.
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 $150.00. The stock is well above its 200-week simple moving average or "reversion to the mean" at $107.57. The 12x3x3 weekly slow stochastic reading is projected to decline to 35.20 this week down from 39.42 on Aug. 16. Back during the week of March 8, 2019, this reading was 90.54 above the 90.00 threshold, indicating that the stock became an "inflating parabolic bubble." Since this decline, that stock is down about 12%.
Trading Strategy: Buy weakness to annual value level at $123.65 and reduce holdings on strength to the semiannual pivot at $150.80 and its monthly risky level at $165.78.
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 annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, the latest on July 31. The quarterly level was changed at the end of June. 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.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."