Salesforce.com, Inc. (CRM) stock has struggled since topping out two days after joining the Dow Jones Industrial Average on Aug. 31, dropping more than 21% into the end of December. A sell-the-news reaction after the cloud computing juggernaut confirmed the acquisition of Slack Technologies, Inc. (WORK) for $27.7 billion did the most damage, triggering a 16-point sell gap that still hasn't been filled. The deal is expected to close in the second quarter of the company's fiscal 2022.
- Salesforce stock has sold off more than 20% since September.
- The correction has reached strong support at the 200-day exponential moving average (EMA).
- A recovery effort starting at or near this price level could reach and mount the 2020 high.
However, the calendar just flipped into January, setting the stage for a strong recovery effort that could easily reach new highs in the coming months. As a result, it may be a perfect time to think about reloading shares, taking advantage of the pullback and loss of faith by departing shareholders. Just keep in mind that upside may take time to develop, at least until price action mounts a few technical barriers broken in the correction.
Wall Street has been usually quiet on Salesforce stock since early December's acquisition news, maintaining a "Strong Buy" rating based upon 21 "Buy," five "Hold," and zero "Sell" recommendations. Price targets currently range from a low of $217 to a Street-high $320, while the stock is set to open the first session of 2021 just $7 above the low target. This is nearly perfect positioning for committed buyers to load up on exposure, taking advantage of the favorable reward-to-risk profile.
An acquisition is when one company purchases most or all of another company's shares to gain control of that company. Purchasing more than 50% of a target firm's stock and other assets allows the acquirer to make decisions about the newly acquired assets without the approval of the company's other shareholders. Acquisitions may occur with the target company's approval or in spite of its disapproval.
Salesforce Daily Chart (2018–2020)
A multi-year uptrend topped out at $161.19 in October 2018, giving way to a steep but short-lived 30% decline into year end. A strong 2019 bounce reached the prior high in February, triggering a breakout that failed to generate buying interest. The rally reversed in June, yielding a slow-motion decline that held well above the December 2018 low into October, when aggressive buyers returned, generating a quick burst to new highs in February 2020.
The stock sold off to a 16-month low during the pandemic decline, ahead of a potent uptick that completed a round trip into the first quarter high in July. It took off in a vertical trend wave in August, posting an all-time high at $284.50 on Sept. 3. A rapid decline to $249 completed a trading range that was tested successfully in October, but aggressive profit-taking took its toll in December, breaking range and 50-day EMA support while filling the August gap between $211 and $251.
Price action has been hovering above the 200-day EMA but below new resistance for the past five weeks, failing to respond to typical end-of-year bullishness. The gap filled partially heading into the holidays, but bearish power is still exerting a downward influence. That could change in coming weeks, perhaps after a final selling flurry. In the meantime, it's time for investors to wrap up their homework and look for buying signals.
A trading range occurs when a security trades between consistent high and low prices for a period of time. The top of a security's trading range often provides price resistance, while the bottom of the trading range typically offers price support.
The Bottom Line
Salesforce stock topped out in September and entered an intermediate correction that nearly reached the 200-day EMA in December. The stock could mount a strong recovery effort at or near this long-term support level, reinstating a strong uptrend that tops $300 in the coming months.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.