Despite their lofty valuations, software stocks have outperformed the broader market by about 10% so far in 2019. These firms continue to reap the benefit of significant investment in enterprise software spending as companies transition to cloud computing, such as Software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS) solutions. Global research and advisory firm Gartner estimates enterprise software spending to reach $457 billion this year before growing to $507 billion in 2020.
Wall Street's appetite for software stocks was on full display Thursday when Datadog, Inc. (DDOG), a cloud software company that sells analytics and monitoring tools, jumped 39% on debut. The stellar launch of the initial public offering (IPO) may help reignite buying across some of the industry's leading names in subsequent trading sessions.
From a technical standpoint, the three large-cap software stocks outlined below sit near crucial support levels and appear poised for a move to retest their recently set all-time highs. Let's take a closer look at each company and establish suitable swing trading levels by analyzing the charts.
Oracle Corporation (ORCL)
Veteran software company Oracle Corporation (ORCL) provides products and services that offer enterprise information technology solutions globally. The firm, which continues to shift toward cloud-based subscriptions, delivered in line first quarter fiscal 2020 earnings per share (EPS) of 81 cents on revenues of $9.2 billion. The company's top line missed analysts' expectations by $69 million during the period but still edged up 0.02% from the year-ago quarter.
Oracle's Executive Chairman and Chief Technology Officer (CTO) Larry Ellison believes that the company's IaaS helps it develop cloud software faster than its competitors. "The infrastructure cloud is a fundamental difference between Oracle and all of our application competitors," Ellison recently said at the Oracle OpenWorld conference in San Francisco, per crn.com. The software giant's stock has a market capitalization of $178.03 billion, offers a 1.71% dividend yield, and is trading almost 20% higher year to date (YTD) as of Sept. 20, 2019.
Since setting an all-time high on July 10, Oracle shares have retraced back toward the 200-day simple moving average (SMA) – an indicator that has provided crucial support on two previous occasions this year. The stock also finds support from an uptrend line dating back to the December 2018 low. Traders who buy at current levels should anticipate a retest of the all-time high at $60.26 and limit downside with a stop-loss order positioned underneath the Sept. 18 low at $51.85.
Adobe Inc. (ADBE)
Adobe Inc. (ADBE) operates as a global diversified software company through three business segments: digital media content creation, digital experience for marketing solutions, and publishing for legacy products. The company's Creative Cloud offering provides a subscription service that allows customers to download and access the latest versions of its creative products.
Adobe topped second quarter earnings and revenue consensus estimates to record year-over-year (YoY) growth of 10% and 25%, respectively. Management attributes the robust results to strong demand for the company's Adobe Document Cloud and Adobe Experience Cloud products, coupled with increased cloud application subscriptions. Trading at $281.26, the stock has a market value of $136.54 billion and is up 24.32% on the year as of Sept. 20, 2019.
Adobe shares trended steadily higher between late December and July but have spent the past two months trading sideways to lower. Those who wish to trade the stock on the long side should look for an entry point near $270, where the price encounters a confluence of support from a 12-month horizontal line and the 200-day SMA. Before committing capital, traders may decide to wait for signs of a reversal, such as a bullish engulfing pattern or hammer candlestick. Once in position, consider setting a profit target near the all-time high at $313.11. Protect capital by placing a stop just below $270.
salesforce.com, inc. (CRM)
With a market cap of $134.71 billion, salesforce.com, inc. (CRM) develops enterprise cloud computing solutions with a focus on customer relationship management. The San Francisco-based company's flagship SaaS product Sales Cloud allows users to store data, monitor leads, and gain insights through analytics and relationship intelligence, as well as deliver quotes, contracts, and invoices.
salesforce.com reported second quarter EPS of 66 cents to deliver an impressive 40% earnings surprise. The beat marks the fourth consecutive quarter the company has exceeded bottom-line expectations. Quarterly revenue of $4.03 billion increased 22% YoY, prompting the company to raise its top-line fiscal 2020 guidance range to between $16.75 billion and $16.90 billion from a prior range of between $16.10 and $16.25 billion. As of Sept. 20, 2019, salesforce.com stock has gained 12.14% YTD.
The salesforce.com stock price added most of its YTD gain in the first two months of the year. However, since then, the stock has remained mostly range bound due to investors fretting about the company's ability to sustain growth after recent acquisitions and slower European sales. More recently, a symmetrical triangle has developed on the chart that sets up a potential breakout trading opportunity. Think about buying if price closes above the triangle's upper trendline at $155 and targeting a move to the all-time high at $167.56, which offers roughly 8% upside. Consider keeping stops situated under this month's low at $147.74.