Palo Alto Networks Inc.: If This Happens, PANW Stock Could Soar
PANW Stock: Reversal in the Making
Markets are making new all-time highs on what seems like a daily basis. Some find it difficult to purchase investments that have run already, preferring the mantra of buying low and selling high, versus buying high and selling higher. It is understandable; most investors are risk-averse. Palo Alto Networks Inc (NYSE:PANW) stock fits the criteria of the “buying low” mantra. PANW stock presents an opportunity to get in on an investment as it transitions from a bearish trend to a bullish one.
The trend has been to the downside since July 2015, when shares peaked at a price of $200.55. In February 2016, share price hit a low of $111.09.
“Fibonacci retracement” numbers (highlighted in green) are a very popular tool used by many technical traders. This tool is used to identify counter-trend price objectives. In theory, when a stock pulls back from a primary trend, shares will retrace approximately 50%-62% of the primary move. This zone usually offers support as traders will be eyeing this area as one to enter long positions or cover short positions.
The blue box is what traders refer to as “trading into the box.” When shares fall into the box, it signals that traders should cover on their short positions and start building a long position. PANW stock played right into the hands of traders. Share price was unable to close below the 50% retracement marker. The tails on the monthly candlesticks can be interpreted as a lot of buying support. This level has now been established as support.
The following chart shows the significance of the following sell-off in PANW stock.
Chart courtesy of StockCharts.com
The following chart illustrates the trend that dominated the price action after PANW stock peaked.
Chart courtesy of StockCharts.com
The downtrend that developed is clear as day, and is created by connecting the peaks of the price chart. A downtrend is defined by price as the trend moves lower. Lower peaks are confirmed by lower troughs. This trend can easily be identified as the price moves from the upper left to the lower right.
This trend was broken on August 16, 2016, when the share price was able to close above the trend line. This is extremely significant, as it is suggesting that the trend has now reversed.
Support has been established and a break of a trend line is signalling a trend reversal. Is this enough information to suggest a challenge of the all-time high?
The following chart illustrates a level of resistance that needs to be overtaken.
Chart courtesy of StockCharts.com
PANW stock needs to close above the 200-day moving average to confirm the trend reversal. This moving average is the final piece of the puzzle.
The 200-day moving average is the dividing line between stocks trading in a bull market versus stocks trading in a bear market. When a share price is above the moving average, it is bullish; when a share price is below the moving average, it is bearish.
It is not hard to see the significance of this moving average. PANW stock broke above the moving average in November 2013 at around $50.00, and then proceeded to trade higher. Shares were finally able to break below the average on a sustained basis in January 2016, when the price fell below $170.00. This moving average acts as a trading bias, as well as support, and resistance.
The Bottom Line on PANW Stock
PANW stock represents an investment that is in the process of transitioning from a bearish trend to a bullish one. Multiple indicators have already transitioned from bearish to bullish. The 200-day moving average is the last obstacle that needs to be overtaken before a new bull market can be declared.
