Salesforce Stock Breaks Out and These Are the Implications

CRM stock
Credit:iStock.com/Tuned_In

CRM Stock: Advancing Impulse Wave Is Developing

salesforce.com, inc. (NYSE: CRM) reported earnings on August 22. The company reported numbers that beat on both the top and bottom lines and, as an added bonus, management increased forward guidance. These headlines should have caused the stock to rip higher, but, in after-hours trading, CRM stock was trading lower by three percent.

August 23 was another story, and the market seemed to have gotten it right, because salesforce stock was trading up that day.

The ramifications behind the move have a number of implications. First, it suggests that the move in after-hours trading was ill-advised, and that, when cooler heads finally prevailed, the share price found its footing and appreciated appropriately. Second, and most importantly, for a technical analyst like myself, the price action is completing a wave pattern that is now suggesting that higher CRM stock prices are on the horizon.

To clarify for those who haven’t frequented my works and are unaware, I use technical analysis to generate a view on a potential investment. This method of investment analysis is predicated on the notion that stocks trend, and therefore, historical price and volume data points can be used to forecast future price moves. This method of investment analysis is currently suggesting that a bull market is in development, in which the path of least resistance is geared toward higher stock prices.

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The following Salesforce stock chart illustrates the wave structure that supports the notion of a bull market and higher CRM stock prices.

Salesforce stock chart

Chart courtesy of StockCharts.com

This CRM stock chart highlights an alternating wave structure that consists of impulse waves and consolidation waves.

The impulse wave is highlighted in green, and this wave defines the stage in a bull market advance when the stock prices accelerate to the upside in a swift and linear motion.

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The consolidation wave, which is highlighted in purple, defines the stage in a bull market advance when the stock price pulls back from its highs and digests the gains that preceded it. This wave functions to alleviate any overbought conditions that were created during the advance that preceded it, so it can set the stage and a new impulse wave can develop.

This alternating wave structure is referred to as constructive price action, and it creates the building blocks that create and sustain a trend.

Following earnings, Salesforce stock exited the consolidation wave in an upward direction. This feat is highlighted on the stock chart as a breakout. Breaking out of the consolidation wave suggests that a new impulse wave is now set to develop, which implies that higher stock prices are on the horizon.

Not only does the wave structure support a bullish view, it can also be used to project a price objective for the impulse wave that is presumed to be developing. This price objective is created by using the theory surrounding constructive price action, which states that impulse waves that are separated by consolidation waves have a tendency to mirror each other in length. Applying this theory to the current wave structure that is in development suggests that the next impulse waves can attain a price of $107.00.

This bullish view surrounding CRM stock is being reinforced by the golden cross that was generated in March of this year. This bullish indication is generated when the faster 50-day moving average crosses above the slower 200-day moving average. A golden cross is an indication used to suggest that a bull market is in development, and it captures the transition from a bear market to a bull market.

The moving averages that created this indication are in bullish alignment, and both moving averages continue to advance because Salesforce stock is trading above both of them. There is little to suggest that this golden cross is going to avert anytime soon.

Analyst Take:

Salesforce stock has just exited a consolidation wave in an upward direction, suggesting that a bull market is still in development. This bullish view was generated by analyzing the company’s stock chart, and it is contingent on the indications remaining in bullish alignment. Therefore, as long as the indications continue to suggest that higher prices are likely, I will continue to hold a bullish views on CRM stock.