Shares of Salesforce.com (CRM) - Get Report have made several failed attempts to retake a key resistance level this month, and with momentum waning they look more likely to move lower and retest support than take out resistance and move higher.
Salesforce stock rallied 59% off its February low this year to an all-time high in May, but then began making a series of lower highs above horizontal support at the $78 level, forming a large triangle pattern on the daily chart. It gapped down through pattern support in September to the $67 area, which is the top end of a previous gap higher and a 50% retracement of the 2016 range. It was also the price projection target of the triangle pattern, measured by taking the height of the pattern and subtracting it from the support line.
A narrow range candle marked the October low, which was preceded by a small gap lower and followed by a small gap higher. This is called an "abandoned baby" in candle parlance, and was a signal the downtrend was about to reverse.
The stock did bounce back up to the bottom end of the triangle and has made several failed high-wick attempts to penetrate that support-turned-resistance level. The 50-day moving average has moved below the 200-day average, making a classic "death cross," but this is of less concern than the epithet implies, since the last death cross actually marked the February low. These averages do, however, reinforce the resistance zone and make it a more difficult barrier to penetrate.
There are conflicting technical indications on Salesforce's chart, with moving average convergence/divergence tracking smoothly higher, but the faster stochastic oscillator making jagged moves reflecting the stock's lurching price action. The aroon indicator, which is designed to identify early shifts in trend, is making a bearish red-under-green line crossover, similar to the one that marked the beginning of the triangle formation. Chaikin money flow moved into negative territory when pattern support was broken and has remained there as the stock has made its failed attempts to penetrate pattern resistance.
The stock is struggling to break through resistance. If it continues to falter, at some point the slippage and loss of momentum will require it to retrace and regroup. This may take the form of a move back down to gap support or potentially lower to build a base and re-energize for another assault on the stubborn resistance level.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.