Akamai Technologies, Inc.: AKAM Stock Chart Warns of a Pending Bear Raid

Akamai TechnologiesAKAM Stock: Bears Regain Control

Akamai Technologies, Inc. (NASDAQ:AKAM) reported its second-quarter earnings on July 26, 2016. Earnings were in line and revenue came in a bit light. Were these numbers any good? Investors were certainly not pleased with these results. AKAM stock sold off the next trading day, gapping down and closing the day down 13%.

I have always been a proponent of a systematic trading strategy. A systematic trading strategy is the difference between making money and losing money over the long term. Managing risk is always the No. 1 criteria. Not every trade will be a winner, but if you keep your losses at a minimum, you live to trade another day.

I like to keep my losses capped at a 10% threshold. Under this threshold, I would have exited AKAM stock if I had purchased shares prior to earnings. I am returning to AKAM stock because the price action has dealt some considerable damage to the charts. A chart that had some glimmers of hope has quickly soured.

The following chart illustrates the trading action post-earnings for AKAM stock:

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Akamai Technologies, Inc. NASDAQ

Chart courtesy of www.StockCharts.com

AKAM stock gapped lower on July 27 and opened the day at $51.23 per share. Shares traded as low as $47.80 before trading off its lows and closing the day at $50.51. This has essentially created a range traders can use to eye the next move.

The bullish camp is hoping to see AKAM stock close above $51.00. This would set up the possibility of the earnings gap being filled. The problem stems from the word “hope,” as it is not conducive to an effective trading strategy. The bulls would need share prices to return to $58.00 swiftly.

The bear camp would love to see shares close below $47.80. This would set up a retest of the February lows around the $40.00 level. AKAM stock left a gap between $40.00 and $45.00. Bears that were trapped by this trading action will be eager to cover their shorts when the share price returns to fill the gap.

The following chart illustrates the position AKAM stock was in prior to earnings and the aftermath:

Akamai Technologies, Inc. NASDAQ Chart

Chart courtesy of www.StockCharts.com

Shares gapped right down to a support level. The bulls need this area to hold. The problem is that momentum is currently to the downside and it puts this support level in jeopardy. A break below this support level would suggest that shares would be retesting the February lows.

AKAM stock has currently generated a golden cross. A golden cross is a bullish signal that is produced on the charts when a faster moving average (in this case, AKAM stock’s 50-day moving average) crosses above a slower moving average (AKAM stock’s 200-day moving average). Traders use the golden cross to confirm a bear market is ahead.

The gap down in share price has put this signal in jeopardy. AKAM stock is currently trading below both its 50- and 200-day moving averages, causing the signal to be potentially averted if shares don’t quickly rebound.

With a rebound seeming unlikely, an averted golden cross is the likely outcome. The significance of an averted signal is that it tends to increase the intensity of the directional move and would signal further downside—and possibly a new low.

The Bottom Line on AKAM Stock

The potential bullish outcome for AKAM stock has indeed soured. Hoping for the chart to fix itself is not a trading strategy. It would be best to step aside if you are in the bullish camp. The bears have retained their foothold and could drive the share price to test AKAM stock’s 52-week low and perhaps lower. I am currently watching the range that was setup post-earnings for some direction.