Salesforce Stock: CRM Stock Chart Is Setting Up to Fly

CRM StockCRM Stock: Bullish Potential

It is looking more and more likely that the bearish headwinds that have been swirling around salesforce.com, inc. (NYSE:CRM) stock are starting to subside. As a result, I have little recourse but to step back from my previous bearish view on CRM stock.

In my previous articles, I have stated that my stock trading views are based on the patterns and signals that are generated using technical analysis. Technical analysis uses past price and volume data to discern trends and forecast future prices. When these signals and patterns begin to suggest that a different view is warranted, then I must follow suit.

Since my last publication about Salesforce stock, there have been a number of bullish developments that have caused me to step back from my bearish view. These developments are occurring on daily, weekly, and hourly time scales. CRM stock could be on its way to justifying a bullish view.

The following Salesforce stock chart illustrates the bullish developments on a daily scale.

sales force

Chart courtesy of StockCharts.com

The CRM stock chart above contains distinct levels of support and resistance. These levels are defined using trend lines that were created by connecting the peaks and troughs on the price chart. These trend lines have contained the price of Salesforce stock since late February 2016. As long as the price is contained within these trend lines, a neutral stance on CRM stock is warranted.

A break above resistance would warrant a bullish view, but a break below resistance would warrant a bearish view. The subsiding of the bearish headwinds suggests, at minimum, that resistance will be put to a test.

The indication that the bearish headwinds began to subside occurred as Salesforce stock sustained a close above the 200-day moving average. The 200-day moving average is the dividing line between stocks trading in a bull market versus stocks trading in a bear market. Trading above this moving average is bullish, and trading below this moving average is bearish.

The following Salesforce stock chart illustrates the bullish developments on a weekly scale.

sales force1

Chart courtesy of StockCharts.com

The CRM stock chart above illustrates healthy and constructive price action.

The healthy and constructive price action consists of two dominant wave structures. An impulse wave advances the price, and a consolidation wave serves to unwind any overbought conditions and set up the next advancing impulse wave. A break above resistance would suggest that the consolidation wave was complete, and that a new impulse wave was set to develop.

These patterns are especially constructive because they can be used to provide a price objective. The theory behind this wave structure is that impulse waves that are separated by consolidation waves tend to mirror each other in terms of length. Under this premise, a bullish price objective based on a successful break above resistance would suggest that CRM stock could attain the $95.00 price point.

The moving average convergence/divergence (MACD) indicator in the lower panel of the chart above supports a test, and a possible break of resistance. The MACD indicator is a simple, yet effective, momentum indicator that uses signal-line crosses to indicate whether bearish or bullish momentum is dominating. The bullish MACD cross that occurred early this year supports the notion that higher prices are now likely, and that resistance can be broken.

The following Salesforce stock chart illustrates the bullish developments on an hourly scale.

sales force2

Chart courtesy of StockCharts.com

The CRM stock chart above using an hourly scale contains the same healthy constructive price action that is contained on the weekly scale.

This structure reinforces the view that resistance is going to be tested in the not-too-distant future. This wave structure produces a potential price objective of $81.00 based on the theory of matching impulse waves. This potential price objective was created by extrapolating the length of the impulse wave above the lowest price point that constitutes the consolidation wave. This potential price objective suggests, and supports, the notion that Salesforce stock will break above resistance.

Bottom Line on Salesforce stock

Salesforce stock is set to test a resistance level in the near future, and the indicators support this notion. A bullish break above resistance would suggest that much higher prices are likely and would warrant a bullish view on CRM stock.