Oracle Corporation (ORCL) is trading lower in Friday's pre-market after the U.S. Commerce Department issued a ban on TikTok and WeChat downloads, effective on Sunday, and is ordering Dow component Apple Inc. (AAPL) and Alphabet Inc. (GOOGL) to remove the apps from their stores. It's unclear at this time if the announcement is a negotiating tactic ahead of the deadline to wrap up an ownership deal or is meant as a final solution.

Key Takeaways

  • The U.S. Commerce Department has banned the download of TikTok and WeChat apps.
  • It's unclear if the news will end Oracle's push for American ownership.
  • Oracle stock needs to hold the $57 to $57.50 price zone to retain the bullish technical outlook.
  • Long-term patterns predict just modest upside if a deal is finalized.

Oracle stock fell about 3% after the news and is trading close to a weekly low, with uncertainty forcing many speculators to give up and walk away. The stock is still holding Monday's breakout in the lower $60s, but that could change after comments from President Donald Trump, which are expected later on Friday. Follow-up comments from Commerce Secretary Wilbur Ross indicate that the president may just "kick the can" to after the November election.

Oracle shares topped out at $60.50 in July 2019, sold off into the $30s in March 2020, and rallied about 1.5 points above that level after the TikTik deal was first announced. The stock has been hovering just above resistance for the past week, waiting for positive news to complete the breakout. A permanent U.S. government ban could force another batch of shareholders to abandon ship, triggering a failed breakout that marks the next stage in a bearish double top pattern.

The company beat top- and bottom-line first quarter 2021 estimates last week, but revenues rose just 2.0% year over year, triggering a sell-the-news reaction. Cloud applications drove positive quarterly results, but bulls hope that the TikTok app will supercharge weak revenue growth. As a result, Oracle is more exposed to a deal failure than Dow component Microsoft Corporation (MSFT), which grew revenues more than 12% in the last quarter.

A double top is an extremely bearish technical reversal pattern that forms after an asset reaches a high price two consecutive times with a moderate decline between the two highs. It is confirmed once the asset's price falls below a support level equal to the low between the two prior highs.

Oracle Long-Term Chart (2000 – 2020)

Chart showing the share price performance of Oracle Corporation (ORCL)
TradingView.com

A multi-year uptrend escalated into a parabolic impulse in 1999, finally topping out at $46.47 in the third quarter of 2000, ahead of a bear market decline that found support at $7.25 in 2002. The subsequent uptick finally completed a round trip into resistance in 2015, yielding a 2017 breakout that stalled just above $60 in 2019. The stock tested new support twice in 2018 and again in March 2020, adding to perennially weak returns for long-suffering shareholders.

Price action in the past decade has tracked a broad rising channel pattern, with support narrowly aligned at the 50-month exponential moving average (EMA). The stock has tested the moving average at least 10 times in the past 11 years, highlighting multiple downswings that have eroded investor patience. The post-news rally stalled less than three points below channel resistance, predicting that good news about TikTok won't translate into many upside points.

On the flip side, more bad news in the short term is likely to fill the Sept. 14 gap between $57.50 and $59.50, testing the intermediate breakout above the July high at $57.29. The technical outlook won't deteriorate as long as price action holds that trading floor. Just keep in mind the stock closed at $57.00 after Friday earnings, before Monday's TikTok news, and a selling impulse below that level is likely to trigger a large cluster of stop losses.

A price channel appears on a chart when a security's price becomes bounded between two parallel lines. Depending on the direction of the trend, the channel may be termed horizontal, ascending, or descending. Price channels are often used by traders who practice the art of technical analysis to gauge the momentum and direction of a security's price action and to identify trading channels.

The Bottom Line

Oracle stock is trading lower on Friday morning after the Commerce Department banned downloads of TikTok and WeChat.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.