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Is Salesforce Finally a Buy After Its Impressive Earnings Beat?

Salesforce is rallying after better-than-expected earnings and strong guidance. Can the stock finally gain some momentum after trending lower for months?

Salesforce  (CRM) - Get salesforce.com, inc. Report was trading higher Friday, up about 6% after the company reported earnings.

The post-earnings pop has been a long-time coming for bulls. While Salesforce has continually put out solid quarterly results, the market has been in no mood to bid this name higher.

Maybe it’s because of the company’s acquisition of Slack  (WORK) - Get Slack Technologies, Inc. Class A Report. Perhaps it’s just the general consolidation of large-cap tech.

Many mega-cap tech stocks can say the same about that consolidation - such as Apple  (AAPL) - Get Apple Inc. (AAPL) Report and Amazon  (AMZN) - Get Amazon.com, Inc. Report.

However, with its much smaller market cap of $220 billion and steady growth, it’s surprising that Salesforce has lagged so much. Even with Friday’s rally, shares are still down more than 15% from the high set on Sept. 2.

Investors are hoping Friday’s action is able to break the current stagnation. The company beat on earnings and revenue expectations and gave a boost to its guidance.

Analysts are reaffirming their buy ratings, too. Let’s look at how the chart sets up.

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Trading Salesforce

Daily chart of Salesforce stock.

Daily chart of Salesforce stock.

A look at the chart highlights some pros and cons, but mostly the former now that we’ve got a post-earnings rally to work with.

Salesforce stock is off the session highs and is struggling with the $240 area. I had previously drawn this level onto the chart as it was support in the third and fourth quarter, but resistance in the first quarter.

To see shares struggling with this area isn’t a nail in the coffin by any means, but it is interesting to see how the market has a way of remembering these zones.

More importantly though, Salesforce stock has now broken out of its downward channel. It's no longer making a series of lower highs, while also having reclaimed all of its major moving averages with Friday's pop.

From here, I want to see Salesforce hold the 200-day moving average and the topside of prior downtrend resistance.

On the upside, back above Friday’s high puts the 61.8% retracement in play near $253. Above that and the $265 to $270 zone is on the table. There isn't a runaway rally happening in tech. At least not yet. So patience will be required with Salesforce.

That said, the chart is looking much better.