Oracle Corporation (ORCL) stock is trading lower by about 3% on Wednesday morning after the company beat fiscal fourth quarter 2020 profit estimates but came up short on revenue. Results were relatively close to expectations, but shareholders hit their exit buttons after the company commented that "some" customers in the hospitality, retail, and transportation sectors had postponed "some" purchases as a result of the coronavirus pandemic.
The company guided the first quarter of 2021 (ending in August) to mid-line consensus but declined to provide full-year estimates due to the ongoing crisis. The metrics offered few reasons for new investors to jump on board. There's also little motivation for Wall Street to recommend owning new shares, with the current standoff between eight "Buy" recommendations and 10 "Hold" recommendations unlikely to change much in either direction.
The enterprise software provider got booted from the Nasdaq 100 index in 2013, even though it was trading at a 13-year high, to make room for a new generation of high-tech favorites. The stock has gained about 60% in the past seven years but hasn't achieved the elite status of other tech stocks, booking just modest gains for long-term shareholders. In addition, the upside has stalled since January 2018, with price action adding just two points between then and now.
ORCL Long-Term Chart (1990 – 2020)
The stock entered a strong uptrend after bottoming out at a split-adjusted 12 cents in 1990, posting impressive gains underpinned by the World Wide Web and semiconductor boom. It split five times during the ascent, which topped out in the mid-$40s in 2000. The subsequent decline carved a complex pattern, dropping to a three-year low in the third quarter of 2002, while a slow-motion bounce made little progress through the middle of the decade.
The rally ended at the .386 Fibonacci selloff retracement level in 2007, giving way to a pullback that accelerated during the 2008 economic collapse. The stock bottomed out at a three-year low in March 2009, posting a higher low than 2002. That resilience underpinned a strong bounce that completed a round trip into the prior high at year end. The subsequent breakout got buffeted by whipsaws for several years before reaching the 2000 peak at the end of 2014.
A 2015 breakout made little headway, topping out less than two points above the 2000 high and easing into choppy pattern that has featured just two healthy upticks in the past five years. It posted an all-time high at $60.50 in July 2019 and rolled over, dumping to a three-year low during the first quarter's pandemic swoon. Price action has now retraced about 70% of the decline, which places the stock just three points higher than June 2017.
The monthly stochastic oscillator has reached the overbought level after crossing into a buy cycle in March. There's little resistance against higher prices with this structure, raising the odds that it will recover quickly from this morning's downdraft. However, an 11-year rising channel should limit upside if the uptick mounts the 2019 high, with resistance now located just above $60. That thrust might not be enough to justify ownership, especially with the 1.76% forward dividend yield.
ORCL Short-Term Chart (2017 – 2020)
The on-balance volume (OBV) accumulation-distribution indicator supports a more bullish view, entering a steady accumulation phase in June 2018. OBV posted a new high with price in 2019 and has now lifted to an all-time high.
This bullish divergence predicts that price will soon play catch-up, with the potential for a rapid surge that closes the distance into the 2019 high. Even so, it makes sense for sidelined investors to wait for buying signals that will unfold if the bounce clears resistance at the .786 Fibonacci selloff retracement level at $56 (blue line).
The Bottom Line
Oracle stock is selling off after a mediocre earnings report but could easily trade up to the 2019 high in coming weeks.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.