A Technical Look at Three Software Companies Set to Report, Plus Microsoft

  NEW YORK (TheStreet) -- Three software companies -- Adobe (ADBE) , Oracle (ORCL) and Red Hat (RHT)  -- are scheduled to report quarterly earnings this week, reports that will provide a gauge of demand for software among businesses.


The following numbers should provide some trading guidelines for the stocks of the three vendors, plus Microsoft (MSFT)  , the leader in the industry, whose stock is up 25% year to date, the best performer in the Dow Jones Industrial Average.

Adobe Systems ($70.98) gapped to an all-time intraday high at $74.69 on June 18 after reporting earnings that beat estimates on June 17. Since then, the stock has been trading sideways to down to as low as $67.57, filling the gap to the June 17 high of $68.

Adobe reports quarterly results after the closing bell on Tuesday. Analysts expect the company to post earnings of 13 cents per share. The stock is not cheap with a 12-month trailing price-to-earnings ratio at 101.4. The weekly chart has parabolic bubble characteristics and a close this week below its five-week modified moving average at $71.09 would be negative.

Failure to hold a weekly value level at $69.46 indicates risk to a semiannual value level at $62.44. Quarterly and monthly risky levels at $72.23 and $73.41, respectively, are below the all-time high.

Microsoft ($46.69) has become a momentum stock, trading at a multiyear intraday high of $47.02 on Friday. Investors tracking the stock's 50-day simple moving average could have bought the stock at $42.25 on Aug. 6.

The company has a 12-month trailing P/E of 18.2 and dividend yield of 2.4%. The weekly chart is positive but overbought with its five-week MMA at $44.78. Semiannual and quarterly value levels lag at $41.67 and $39.45, respectively, with a monthly pivot at $45.85.

Oracle ($40.50) set a multiyear intraday high of $43.19 on June 19, and reported earnings that missed estimates after the closing bell that day. The stock gapped below its 50-day SMA at $41.30 on June 20, and traded as low as $39.53 on Aug. 4. The stock ended last week below its 50-day now at $40.66.

The company reports quarterly results after the closing bell on Thursday; analysts expect it to post earnings of 60 cents per share. The stock has a 12-month trailing P/E of 14.6 and dividend yield of 1.2%. The weekly chart is neutral with its five-week MMA at $40.81 with rising 12x3x3 weekly slow stochastics.

Semiannual and annual value levels are $38.85 and $34.92, respectively, with a weekly pivot at $41.24 and annual and quarterly risky levels at $42.23 and $42.72, respectively.

Red Hat ($70.98) set a multiyear intraday high of $62.69 on Aug. 19. On June 18, the company reported better-than-expected earnings which fueled the upward momentum.

The company reports quarterly results after the closing bell on Thursday; analysts expect it to report earnings of 26 cents per share. The stock has an elevated 12-month P/E of 56.1. The weekly chart is positive but overbought with its five-week MMA at $59.25.

Annual and monthly value levels are $55.80 and $54.74, respectively, with semiannual and weekly risky levels at $63.86 and $64.89, respectively.

 

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Crunching the Numbers with Richard Suttmeier: Moving Averages & Stochastics

This table provides the technical status for the stocks profiled in today's report.

This table shows the 12-month trailing price-to-earnings ratio and dividend yield.

There are five columns with moving average titles: Five-Week Modified Moving Average, 21-Day Simple Moving Average, 50-Day Simple Moving Average, 200-Day Simple Moving Average and the 200-Week Simple Moving Average.

The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with readings from Oversold, Rising, Overbought, Declining or Flat.

Interpretations: Stocks below a moving average are listed in red.

Five-Week Modified Moving Average (MMA) is one of two indicators that define whether or not a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.

A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.

A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.

A stock with a neutral technical rating has a profile that is not positive or negative.

The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance and as a "reversion to the mean" over a rolling three- to five-year horizon.

The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three to five day horizon and vice versa.

The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators in financial TV.

The 200-Day Simple Moving Average is another technical support or resistance and I consider this level as a shorter-term "reversion to the mean" over a rolling six- to 12-month horizon.

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Crunching the Numbers with Richard Suttmeier: Earnings & Where to Buy & Where to Sell

This table shows the analysts earnings-per-share estimates, the date earnings are reported and whether the report is before the opening bell or after the closing bell.

Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.

Investors who wish to buy a stock should use a good-until-canceled GTC limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.

At the time of publication, the author held no positions in any of the stocks mentioned.

Follow @Suttmeier

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

 


TheStreet Ratings team rates MICROSOFT CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate MICROSOFT CORP (MSFT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, reasonable valuation levels and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

You can view the full analysis from the report here: MSFT Ratings Report

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