Salesforce.com Consolidates Bull Market Gains -- Here's How to Trade It

Cloud computing is becoming a crowded sector, and Salesforce.com (CRM) has been the popular player in this expanding software industry. The stock may be down 5.6% year to date, but it is still in bull market territory, 40.7% above its Feb. 8 low of $52.60.

Even with this positive backdrop, the stock is also in correction territory, and is 12.4% below its all-time intraday high of $84.48, set on May 26.

The outcome of this bull vs. bear tug-of-war will be determined by how investors react to quarterly earnings, to be reported after the closing bell on Thursday.

Analysts expect Salesforce to earn just 3 cents a share. It will be interesting to hear what the company says about its customized artificial intelligence applications. Will the company discuss its interest in buying (or not buying) Twitter (TWTR) ?

Here are the daily and weekly charts for Salesforce.com.

The daily chart features the Fibonacci retracement levels of the stock's rise from its Feb. 8 low to its May 26 high. Retracements are 23.6%, 38.2%, 50% and 61.8% of this bull market rally.

The weekly chart shows a red line through the price bars, marking the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average, the "reversion to the mean."

The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicate overbought and readings below 20.00 indicate oversold.

A negative weekly chart shows the stock below its key weekly moving average, with weekly momentum declining below 80.00 in a trend toward 20.00. A positive weekly chart shows the stock above its key weekly moving average, with weekly momentum rising above 20.00 in a trend towards 80.00.

Here's the daily chart for Salesforce.com.

Courtesy of MetaStock Xenith

The daily chart of Salesforce shows the Fibonacci retracement levels of the rebound from the Feb. 8 low of $52.60 to the May 26 all-time high of $84.48. Salesforce closed Tuesday at $74.02, down 5.6% year to date and in correction territory, 12.4% below its May 26 high. Even so, the stock is also in bull market territory, 40.7% above the Feb. 8 low.

Salesforce reached its all-time high thanks to a positive reaction to earnings released on May 18. From the May 26 high, the stock traded below its 23.6% retracement of $76.95 on June 27, but then rebounded to a secondary high of $83.09 on July 21. The stock then dipped again to its 23.6% retracement and tested its 200-day simple moving average of $76.02 on Aug. 17.

The stock rebounded to a failed test of its 50-day simple moving average at $80.12 on Aug. 31, just as the company reported its last quarterly results. Again, the earnings report was disappointing, and the stock gapped lower and shares eventually bottomed at $66.77 on Oct. 5, below the 50% retracement of $68.54.

Since the Oct. 5 low, the stock rebounded into a trading range between its 38.2% retracement of $72.30 and its 23.6% retracement of $76.95, which is the earnings reaction neutral zone.

Here's the weekly chart for Salesforce.

Courtesy of MetaStock Xenith

The weekly chart of Salesforce is neutral, with the stock just below its key weekly moving average of $74.32 and above its 200-week simple moving average of $62.27, last tested during the week of Feb. 12, when the average was $54.49. The weekly momentum reading is projected to rise to 48.58 this week, up from 45.44 on Nov. 11.

Investors looking to buy Salesforce should consider buying weakness to $72.80 and $65.42, which are key levels on technical charts until the end of 2016. Investors looking to reduce holdings should consider selling strength to $84.58 and $87.15, which are key levels on technical charts until the end of 2016.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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