Buy the Dip in Slack Despite Post-Earnings Fall

Slack is getting pummeled despite beating on earnings and revenue estimates. Is the stock a buy on the dip? Let's look at the charts.
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Slack  (WORK) - Get Report is getting hit hard in Wednesday’s trading session, down about 16% after reporting earnings.

Thanks to the coronavirus, work-from-home and remote stocks have been spiking on ballooning demand. This includes names like Zoom Video  (ZM) - Get Report, DocuSign  (DOCU) - Get Report and at one point, Slack.

However, unlike some of these other coronavirus plays, Slack has a very difficult competitor in Microsoft  (MSFT) - Get Report Teams.

Still, the company has churned out solid growth. In its most recent quarter, the company beat on earnings and revenue estimates, growing sales by almost 50% year-over-year and turning in break-even bottom-line results.

However, billings came up slightly short of expectations — $218.2 million vs. $226.3 million — which seems to be causing Wednesday’s beating. That could be a buying opportunity for patient investors, even if analysts are slashing their price targets

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Trading Slack Stock

Daily chart of Slack stock.

Daily chart of Slack stock.

Now below $25, it’s hard to believe that just a few days ago this name was bumping its head against $35. However, a quick pullback sent shares back below $30 and the 20-day and 50-day moving averages ahead of earnings. 

With Wednesday’s decline, Slack stock gapped below the 200-day moving average and short-term uptrend support (blue line).

For now, it’s clinging to a key retracement area near $24.50. If measuring from the March low to the pre-coronavirus 2020 high, the 61.8% retracement comes into play near this mark. If measuring from the March low the post-coronavirus high, the 38.2% retracement comes into play near this level.

In either case, this is a key area for traders to keep an eye on. If it holds, look for a rotation back through Wednesday’s high at $25.83. Above that puts the 200-day moving average back in play.

Should the $24.50 area fail to hold as support, the 50% and 38.2% retracements are in play near $22.80 and $21, respectively. It would take another painful 18.5% decline from current levels, but should Slack get to $20, it should be met with strong support. 

I thought the report was good, but clearly the market’s opinion is different. Let’s see if this support area holds up, giving dip buyers a better risk/reward setup. Otherwise, investors have to be open to more downside.