PANW Stock: Technical Damage
Palo Alto Networks Inc (NYSE:PANW) reported earnings of $0.55 on Monday night, which was better than consensus estimates of $0.52, but that is where the good news ended. Revenue came in light, forward guidance was a real disappointment, and revenue growth is now at is slowest pace on record.
As a result, PANW stock is trading lower by 11.21% and was set to open trading on Tuesday at $143.00.
In my previous report about this company, I explained why I was bullish on Palo Alto stock. At the time, PANW stock was trading at $146.00. My views were based on the patterns and signals that I was able to extract from the price chart.
The price chart is my preferred way of analyzing investments because it allows my strategies to be systematic and completely reliant on stock prices. The major advantage is that my trading decisions are preset, and this reduces any emotional biases that may affect my investment decisions.
PANW stock was set to open trading lower on Tuesday, by a considerable sum. This will do some chart damage, but there is a key level that could act as support.
The following Palo Alto stock chart illustrates the moving average that could act as support on Tuesday
Chart courtesy of StockCharts.com
PANW stock was set to open the trading day at $143.00, and that is just above the 200-day moving average price of $142.06. 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.
First and foremost, in order to remain bullish, PANW stock needs to remain above this moving average. The chart above illustrates that when PANW stock is above the 200-day moving average, the stock trends higher and when it is below that moving average, the PANW stock trends lower.
PANW stock was set to open the day above this moving average so, at this moment, the stock is still bullish, based on the 200-day moving average.
The following Palo Alto stock chart is not so supportive, and it illustrates the damage that this lower open will cause.
Chart courtesy of StockCharts.com
PANW stock has been trading in an expanding channel since the lows that were generated in July. There are two trend lines that make up this channel: resistance is highlighted in baby blue and support is highlighted in black. This channel effectively contained the price as it trended higher.
Since Palo Alto stock was set to open the trading day below support, this would mean that this channel has effectively been broken, and that the trend toward higher prices is also broken.
Not all the news is bad.
In October 2016, Palo Alto stock generated a golden cross. A golden cross is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. This signal serves to confirm that a bull market is in play and it creates the necessary tailwinds to push shares higher.
This bullish signal is still in play, the moving averages are far enough apart, and there is currently no danger of crossing and creating a death cross, especially if PANW stock can stay above the 200-day moving average. A death cross is the exact opposite of a golden cross, and has bearish implications.
Bottom Line on Palo Alto stock
Palo Alto stock was set to start the trading day lower on Tuesday and, as a result, this will cause technical damage to the PANW stock chart. The technical chart damage warrants stepping back from a bullish bias and waiting for a constructive pattern to develop.