Cloud software giant salesforce.com, inc. (CRM) beat earnings estimates for the 12th consecutive quarter on Feb. 25, but the shares saw muted upside. Salesforce stock had set its all-time intraday high of $195.72 on Feb. 20 but could not set a new high on the positive earnings report. A warning is that the stock failed to hold its quarterly risky level at $193.89 on the day of the high. Booking profits at $193.89 was thus the correct strategy.
Salesforce stock closed last week at $162.64, up just 0.9% year to date. The stock is thus in correction territory at 16.2% below the all-time high. Even so, the stock is in bull market territory at 36.6% above its Dec. 24, 2018, low of $120.16.
Salesforce has an earnings winning streak of 12 consecutive quarters, but shares are not for value investors. Its P/E ratio is 160.89, and the company does not offer a dividend, according to Macrotrends.
The daily chart for salesforce
The daily chart for salesforce shows that the stock moved sideways after an early surge as began 2019. This trading range resulted in a false "golden cross" followed by a false "death cross." A "golden cross" on Dec. 12 set the stage for the spike higher to the Feb. 20 high of $195.72. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average to signal that higher prices will follow.
The close of $162.64 on Dec. 31 was an important input to my proprietary analytics. The stock rose above its semiannual pivot at $163.17 on Jan. 2. It then popped above its annual pivot at $167.49 on Jan. 6. The quarterly risky level at $193.89 was tested at the Feb. 20 high.
The close of $170.40 on Feb. 28 was another input to my analytics. The monthly risky level for March at $173.63 was tested between March 2 and March 5.
The weekly chart for salesforce
The weekly chart for salesforce ended last week negative, with the stock below its five-week modified moving average of $175.92. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $120.32.
The 12 x 3 x 3 weekly slow stochastic reading ended last week at 70.77 last week, down from 83.29 on Feb. 28. This pushed the stock below the oversold threshold of 80.00. During the week of Jan. 31, this reading was above 90.00 in an "inflating parabolic bubble" formation. Bubbles almost always pop, and this one popped with a decline of 16.2% off the high.
Trading strategy: Buy salesforce stock on weakness to its "reversion to the mean" at $120.32 and rising each week. Reduce holdings on strength to its monthly risky level at $173.62. Semiannual and annual pivots remain at $163.17 and $167.49, respectively.
How to use my value levels and risky levels: Stock closing prices on Dec. 31, 2019, were inputs to my proprietary analytics. Quarterly, semiannual, and annual levels remain on the charts. Each calculation uses the last nine closes on these time horizons.
Monthly levels for March were established based upon the Feb. 28 closes. New weekly levels are calculated after the end of each week. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered as being "too cheap to ignore," which is typically followed by gains of 10% to 20% over the next three to five months.
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Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.