How to Trade Salesforce With Earnings, Slack Deal on Deck

Salesforce became a bit more volatile on reports that it will acquire Slack. Now with earnings on deck, let's get a look at the charts.
Author:
Publish date:

Salesforce  (CRM) - Get Report has been having a busy couple of days. With earnings on tap for Tuesday after the stock markets close, it’s about to get even busier.

Late last week, rumors surfaced that the company was sizing up Slack  (WORK) - Get Report for an acquisition. Now it’s a deal that’s all but expected to go through.

According to those reports, the deal could value Slack above $20 billion, although investors are hoping to get some more answers when the company reports earnings after the closing bell.

The stock has largely been trading sideways for the last few months. From April through mid-August, Salesforce had been trending higher, slowly but surely. In late August though, a robust earnings report sent shares rocketing higher.

Salesforce climbed 26% in a single day after earnings. Including the seven sessions before earnings and the five that followed, shares rallied in 10 out of 12 of those days.

With so many factors in play, let’s look at the charts.

Salesforce is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells CRM? Learn more now.

Trading Salesforce

Daily chart of Salesforce stock.

Daily chart of Salesforce stock.

While there are a lot of complexities surrounding Salesforce at the moment, the plus side is that the charts are relatively simple.

On the chart above, you can see where shares rocketed higher in August on better-than-expected earnings. After that though, Salesforce topped out in early September with the rest of tech, hitting an all-time high of $284.50.

After pulling back from that high, Salesforce settled into a trading range, with resistance at $270 and support near $235.

On Monday, the stock bounced off support and the 100-day moving average, as Salesforce sits near the bottom of its recent trading range.

Once the company releases its results, the stock could get volatile. On the downside, look for a break of range support and the 100-day moving average. That will put a gap-fill in play near $218. A slight overshoot to $210 fills Salesforce’s other gap, albeit a much smaller one.

Below that and the 200-day moving average is in play near $200, although it will require a correction of nearly 20% to get there.

On the upside, I want to see Salesforce reclaim its 50-day moving average and challenge resistance between $265 and $270. It’s okay if it fails, so long as the 50-day moving average holds as support.

Above $270 puts the all-time high in play at $284.50, with $300 in play beyond that.