All Eyes on Resistance for ORCL Stock
Oracle Corporation (NYSE:ORCL) stock is one of the few dinosaur technology stocks that survived the dotcom bubble that busted in 2000. I remember those feverish days like it was yesterday, as any Internet-related investment had a habit of creating overnight millionaires. Companies like Oracle saw their stock skyrocket; investors’ insatiable appetite for technology stocks drove ORCL stock from a paltry low of $2.69 in 1998 to a high of $42.52 in 2000.
An investment in Oracle stock represented a potential lottery ticket that carried a 1480.66% return. A $10,000.00 investment in January 1998 would have netted a gain of $148,066.91 by September 2000. As impressive as this was, the sell-off that followed was just as fierce, and it crushed dreams and retirement accounts in the process. I was fortunate enough to be young at the time, and the losses I took were a small price to pay for the lessons that I have learned.
It has taken ORCL stock 17 years to come full circle, and the prospects of Oracle stock topping the level that marked the high in 2000 has me very excited, because achieving this feat carries tremendous implications. These implications are based on the rules set out by technical analysis, and the fallout from the tech bubble is what drove me to this style of investment analysis in the first place. Oracle is on the verge of breaking above a level that stood for 17 years, and a successful breakout would open the door to much higher prices.
The following long-term Oracle price chart illustrates the trading action that preceded and followed the dotcom tech bubble.
Chart Courtesy of StockCharts.com
This rise and fall that ORCL experienced during the frenzy of the dotcom bubble was quite a feat to see, and to think that this price action was in the the context of a larger bull market is almost difficult to apprehend.
The ORCL stock chart above illustrates that the tech bubble was a mere blip in a long-term trend that is highlighted on the chart above using a simple uptrend line. This uptrend began off the lows in 1998, and is created by connecting the valleys on the price chart. This simple trend line is serving to define a bull market advance that is almost two decades in the making.
Oracle has now gone full circle and is testing the previous all-time high that was created in September 2000. This important price level is highlighted as resistance on the chart above, and breaking above it would suggest that much higher prices would follow. This is the last level of price resistance, and beyond it, the sky is truly the limit.
Price patterns can be used to construct a potential price objective, and the shape of this pattern fulfils that criteria. In order to create this price objective, the depth of the price action below resistance is taken, and then it is extrapolated above resistance. When I applied this method to the chart pattern above, it created an initial price objective of $77.00, which is predicated on a successful break above resistance. This price objective reinforces the notion that higher prices will follow when Oracle creates a new all-time high.
The following Oracle stock chart illustrates the price action that reinforces the notion that resistance will be broken.
Chart courtesy of StockCharts.com
In 2015, after a valiant effort at testing the all-time high, a constructive price pattern developed on the Oracle price chart. This constructive price pattern is labeled “head & shoulders.”
A head & shoulders pattern consists of three troughs and a neckline. The middle trough, the head, is the largest, and first and third trough, the shoulders, are usually of equal size. The neckline is formed by connecting the reaction highs. The pattern is confirmed when price closes above the neckline, indicating that a breakout has occurred.
These patterns are especially constructive because not only do they provide the next direction in price, but they also produce a potential price objective. The price objective is obtained by taking the depth of the head and extrapolating it above the neckline. If I apply this to the completed head & shoulders pattern, it produces a price objective of $50.00. This price objective is above the previous all-time high and reinforces the view that ORCL stock is heading higher.
The following Oracle stock chart illustrates an indicator that adds further support to the idea that higher prices are likely to follow.
Chart courtesy of StockCharts.com
The ORCL price chart above illustrates that the monthly moving average convergence/divergence (MACD) indicator in the lower panel has just crossed in a bullish manner.
MACD is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish momentum. The bullish cross that was just generated suggests that bullish momentum has once again overwhelmed any bearish momentum, and as a result, higher prices can be expected because the path of least resistance is tilted towards higher prices.
Bottom Line on Oracle Stock
Oracle stock is moments away from breaking out above its previous all-time high that was set at the peak of the dotcom bubble. A break above this level carries tremendous bullish implications for ORCL stock. Both price action and technical indicators reinforce the notion that a breakout will occur.