Salesforce Beats Estimates – Stock Forms Trading Range

Cloud software giant Salesforce.com, Inc. (CRM) beat earnings estimates for the 13th consecutive quarter on May 28. The stock traded as high as $184.80 that day and then slumped to $167 on June 5. Salesforce stock is trading between its annual pivot at $167.49 and its quarterly and monthly pivots at $181.82 and $182.72, respectively.

The stock closed Tuesday, June 9, at $174.56, up 7.3% year to date and in bull market territory at 51.4% above its March 18 low of $115.29. Salesforce stock is also in correction territory at 10.8% below its all-time intraday high of $195.72 set on Feb. 20. Salesforce is not cheap, with a P/E ratio of 214.67, and the company does not offer a dividend, according to Macrotrends. This stock is not for value investors.

The daily chart for Salesforce

The daily chart for Salesforce shows that the stock moved sideways around its 200-day simple moving average until Dec. 20. Then the stock regained momentum, which led the stock to its all-time high of $195.72 set on Feb. 20.

As 2020 began, Salesforce stock moved above its semiannual pivot at $163.17, and its annual pivot was penetrated and held on Jan. 6. This was a second reason for the stock to go to its Feb. 20 high.

The stock then fell in a 41% crash to its March 18 low of $115.29. Salesforce fell below its 50-day simple moving average on Feb. 26, held its semiannual pivot at $163.17 on Feb. 28, and then failed to hold this level on March 6.

Failure to hold its 200-day simple moving average on March 11 led to the March 18 low of $115.29. On the rebound, the stock returned to its 200-day simple moving average on April 17. On May 7, the stock moved back above the semiannual and annual pivots at $163.17 and $167.49, respectively. The trading range between $167.49/$163.17 and $181.82/$182.72 has been in play since May 7.

The weekly chart for Salesforce

The weekly chart for Salesforce is positive, with the stock above its five-week modified moving average at $171.00. The stock is well above its 200-week simple moving average, or reversion to the mean, at $125.90.

The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 79.99 this week, up from 76.33 on June 5. 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 the decline to the March 18 low.

Trading strategy: Buy Salesforce stock on weakness to its annual and semiannual pivots at $167.49 and $163.17. Reduce holdings on strength to quarterly and monthly pivots at $181.82 and $182.72.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons.

The second quarter 2020 level was established based upon the March 31 close, and the monthly level for June was established based upon the May 29 close. New weekly levels are calculated after the end of each week, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and 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 the 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 "too cheap to ignore," which is typically followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.