Oracle Shares Gap Lower on Earnings; Investors Face Risk to This Moving Average in 2020

Buy Oracle on weakness to quarterly and semiannual value levels at $52.66 and $52.25. In 2020, the risk is to its 200-week simple moving average, which is rising at $47.23.
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Oracle  (ORCL) - Get Report reported mixed earnings after the close on Dec. 12. The stock gapped below its monthly pivot at $55.86, indicating risk to quarterly and semiannual value levels at $52.66 and $52.25, where investors should buy on weakness.

The stock's 200-week simple moving average, or reversion to the mean, has been climbing since April 2005, when the average was $12.25. This pattern should continue into 2020 as this key moving average is rising at $47.23.

The Redwood City, Calif., database-software company faces stiff competition from Amazon  (AMZN) - Get Report and Microsoft  (MSFT) - Get Report. This is reflected in the revenue miss and tepid forward guidance. The weekly chart showed a warning as it was negative before the earnings report.

The stock closed Thursday at $56.47, up 25% year to date and in bull-market territory 33% above its Dec. 26 low of $42.40. The stock is 6.7% below its all-time intraday high of $60.50, set on July 10.

The stock has a neutral fundamental profile with a p/e multiple of 17.07 and dividend yield of 1.7%, according to Macrotrends.

The daily chart for Oracle

Chart shows risk to $52.66 and $52.25

Chart shows risk to $52.66 and $52.25

Courtesy of Refinitiv XENITH

The daily chart for Oracle shows that Dec. 26 was a key reversal day. This occurred when the stock set its Dec. 26 low of $42.40, then closed at $44.59, above the Dec. 24 high of $43.83. This set the stage for the 2019 rally. 

The stock ended 2018 at $45.15, which was an important input to my algorithms and resulted in the annual pivot at $47.54. This level provided a breakout value level between Jan. 7 and Jan. 15. 

The close of $56.97 on June 29 was another key input to my algorithms that resulted in the semiannual value level at $52.25. That held between Aug. 14 and Sep. 19. 

The close of $55.03 on Sept. 30 was an input that resulted in a fourth-quarter value level at $52.66. This level has not yet been tested. 

The close of $56.14 on Nov. 29 was an input that resulted in a pivot for December at $55.86. That failed to hold in reaction to Thursday’s earnings miss.

The Weekly Chart for Oracle

The weekly chart shows risk to its reversion to the mean in 2020,

The weekly chart shows risk to its reversion to the mean in 2020,

Courtesy of Refinitiv XENITH

The weekly chart for Oracle is negative with the stock below its five-week modified moving average of $55.38. 

The stock is well above its 200-week simple moving average, or reversion to the mean, at $47.23. That's the downside risk as the average rises into 2020. 

The 12x3x3 weekly slow stochastic reading is projected to slip to 68.95 this week from 73.11 on Dec. 6.

Trading Strategy: Buy weakness to the quarterly and semiannual value levels at $52.66 and $52.25, respectively, and reduce holdings on strength to its monthly risky level at $55.86.

Value levels and risky levels are based on the past nine monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play.

The close at the end of June 2019 established new monthly, quarterly and semiannual levels. The semiannual level for the second half of 2019 remains in play.

The quarterly level changes after the end of each quarter so the close on Sept. 30 established the level for the fourth quarter.

The close on Nov. 29 established the monthly level for December.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.