CRM Stock: Bearish Headwinds
The presidential election has come and gone; Donald Trump is going to the 45th president of the United States. The fears surrounding his win were ill-advised, as the markets did not crash like all the pundits and media described. The effect was quite the contrary, as the markets have soared.
I have been bearish on salesforce.com, inc. (NYSE:CRM) stock, and this newfound optimism for the equity markets has done little to sway my view. The picture that generated my original view has remained bearish, and new developments are serving to reaffirm this bearish view.
My view on CRM stock was produced by analyzing the price pattern and the technical signals that were generated on the CRM stock chart. CRM stock has given me multiple reasons to be bearish on the name, as the evidence I gathered continues to confirm my bearish views.
The following CRM stock chart illustrates the pattern and signals that first elicited my bearish view.
Chart courtesy of StockCharts.com
The bearish pattern that CRM stock has put in is known as a rounded top. This pattern is produced when investors begin to distribute shares to other unsuspecting retail investors. This process is slow and drawn out, as it takes time to unload a position of size without disrupting the market. The pattern is also this shape because bull markets end slowly, and this is because the emotion of greed that fueled the price takes longer to subside. That is contrary to fear, which causes spike bottoms, as fear tends to subside quickly.
This bearish pattern is almost complete, and the only hope for the bulls is that this pattern aborts by the price breaking above it. If this pattern is not aborted, I could foresee a possible test of the 2015 lows at $52.50.
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. CRM stock gapped below this moving average in September, and every attempt to close above it has been refuted. As long as salesforce.com, inc. stock is trading below this level, my bearish bias is reaffirmed and the probability of a sell-off increases.
The following salesforce.com, inc. stock chart illustrates the pattern that has increased my bearish view on CRM stock.
Chart courtesy of StockCharts.com
The CRM stock chart above illustrates a bearish pattern that has just been completed. The pattern is what traders refer to as a rising wedge. This pattern is created using two converging trend lines. One trend line acts as support and the other acts as resistance. The support trend line has a higher slope than the resistance trend line, and that is what gives this pattern its shape. On average, these patterns break down, and are therefore seen in a bearish light.
This pattern broke down below the lower trend line that acted as support, and the implication is that the price point of $67.00 will be tested. Compound this event with the fact that equity markets have surged after the Trump win, and the relative weakness in CRM stock is apparent.
Rising wedges are continuation patterns and, as a result, the price is likely to fall below the initial price objective. This increases the odds that CRM stock could test $52.50.
Bottom Line on salesforce.com, inc.
I am bearish on CRM stock, and the price picture continues to suggest that my bearish view is justified. My bias was generated using the price chart so, if the price aborts the bearish setup, I will have no choice but to change my view on CRM stock.