, Inc.: CRM Stock Waved White Flag Prior to TWTR

CRM stockCRM Stock: Bearish Headwinds

Nothing makes great news headlines like a merger or acquisition. The school of thought has always been to short the company that is the acquirer and buy the company that is the target of the acquisition.

News broke on September 23, 2016, that, Inc. (NYSE:CRM) is one of the companies interested in acquiring Twitter Inc (NYSE:TWTR), and this news was effective in sending CRM stock down 11.37% in a single session.

This sell-off could have been seen as a one-off event based on the school of thought I outlined, but my argument is that bearish headwinds were already swirling for stock and the acquisition news only served to exasperate the bearish trend that was already instilled in the stock.

The following stock illustrates where my bearish viewpoint began.


Chart courtesy of

The 200-day moving average is the dividing line between stocks trading in a bull market versus stocks trading in a bear market. When the share price is above the moving average, it is bullish. When the share price is below the moving average, it is bearish. It is not difficult to see how this line has acted as a dividing line between levels of support and resistance.

In January 2016, when the 200-day moving average was breached, CRM stock proceeded to sell-off 28%. After bottoming in February, stock proceeded to rally back above this level, and every minor selloff was once again supported by this 200-day moving average.

On the last trading day in August, once again this moving average was breached to the downside. So going into the announcement of a possible acquisition of Twitter, the bearish headwinds were already in play. The acquisition news only served to confirm the bearish price action. Acquiring a company takes a lot of capital and usually involves issuance of debt and share dilution, which are all factors that are seen as bearish in the eyes of shareholders.

The 200-day moving average was not the only bearish signal, as the following stock chart illustrates.


Chart courtesy of

The CRM stock chart above illustrates that the uptrend was breached in January 2016 and the trend toward higher prices ceased at that point. The rally that proceeded was just a backtest of that uptrend. Backtests of trends are one way equities reaffirm a break of a trend. In some circles, traders to refer to the backtest as one last kiss goodbye before the new trend reasserts itself.

There is potential for this pattern to become really ominous if a double top were to execute. For that to occur, CRM stock would need to close below the low set in February 2016. At this point, it is too early to speculate on such a pattern, as other levels of support can halt the current bearish action, as illustrated below.


Chart courtesy of

The stock chart above illustrates different levels of support that may serve to halt any further slide in the share price. The parallel lines highlighted in blue represent an ascending channel, and the line highlighted in pink represents the uptrend in CRM stock that has been in place since shares bottomed after the financial panic of 2008. If the recent bearish price action is going to find a level of support, it will be at these prevailing levels.

A break below the uptrend line would have serious bearish implications and would give me reason to believe that the selloff in CRM stock has a lot more to go before it concludes. A break below the uptrend line would also coincide with confirming a bearish double top.

The calendar month does nothing to help the bulls, as this time of year is known for volatility, and any uncertainties regarding the presidential election may increase an already volatile time of year.

Last Word on Stock

My bias on stock is currently bearish. The news surrounding TWTR stock only served to propel an already bearish-looking price chart. My bias will remain bearish on CRM stock for as long as it is trading beneath the 200-day moving average.