VMware, Inc. (VMW​) provides cloud-based virtualization infrastructure software solutions in the U.S. and around the globe. Networking and storage applications are accessed from desktop computers, servers and mobile devices. The stock closed Wednesday at $119.42, up 51.7% year to date and solidly in bull market territory at 59.5% above its post-election low of $74.85 set on Nov. 14, 2016. The stock set its all-time intraday high of $127.59 on Nov. 29 and then plunged 6.4%, in line with the reversal among many tech stocks.

Analysts expect VMware to post earnings per share between $1.27 and $1.29 when it reports results after the closing bell on Nov. 30. Most analysts expect earnings to beat estimates, which have been raised recently. The company has offered solid guidance in recent quarters, and the stock has responded with an all-time intraday high of $127.59 set on Wednesday, but this could be reversing given a daily "key reversal" and a pending weekly "key reversal." (See also: VMware Beats on Q2 Earnings and Revenues, Raises View.)

The daily chart for VMware

Daily technical chart showing the performance of VMWare, Inc. (VMW) stockCourtesy of MetaStock Xenith

The daily chart for VMware shows that the stock has been above a "golden cross" since June 22, 2016, when it closed at $60.79. A "golden cross" occurs when the 50-day simple moving average (SMA) rises above the 200-day SMA, indicating that higher prices lie ahead. This bullish signal remains in play with the stock at $119.42. The stock stayed above its 50-day SMA of $116.99 on Wednesday, despite the 6.4% drop. However, Wednesday's price bar at the upper right represents a daily "key reversal," as the stock set its new high and then closed below the prior day's low.

The weekly chart for VMware

Weekly technical chart showing the performance of VMWare, Inc. (VMW) stockCourtesy of MetaStock Xenith

The weekly chart for VMware is positive but overbought, with the stock above its five-week modified moving average of $118.31 and well above its 200-week simple moving average, also known as the "reversion to the mean," now at $83.09. This key average was last tested at $79.26 during the week of Jan. 6, 2017. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week at 91.50, down from 95.63 on Nov. 24. This momentum reading is well above the overbought threshold of 80.00 and represents what I describe as an "inflating parabolic bubble" with a reading above 90.00. Note that the weekly bar at the upper right shows a potential weekly "key reversal." After the stock set its all-time intraday high this week, a close on Friday below last week's low would confirm this reversal.

Given this chart and analysis, my trading strategy is to buy weakness to my semiannual and quarterly value levels of $96.62 and $80.35, respectively, and to reduce holdings on strength to my annual risky level of $130.73. (For additional reading, check out: VMware: Virtualization and the Hybrid Cloud.)

 

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.