The Key Takeaways
- Oracle shares fell in Monday’s extended trading after the enterprise-software company missed adjusted fiscal second quarter earnings estimates, and gave tepid outlook.
- A rising wedge chart pattern, which signals potential downside movement, is a sign that the stock may be about to collapse.
- Investors should watch key support levels on Oracle's chart around $177, $165, and $145.
- The price of the stock could rise to $236 if you use a measured move. This is calculated by adding the amount of the wedge’s rising point near the widest part of its pattern and then subtracting it from the top trendline.
Oracle’s (ORCL) stock fell in extended trading Monday following the announcement of earnings that were below Wall Street estimates and a lackluster outlook amid increased competition between cloud services providers.
Cloud infrastructure revenues for the enterprise software giant rose 52% over a previous year due to an increase in computing power needed to run heavy workloads involving artificial intelligence. Analysts had predicted this growth.
As the competition for cloud services intensified from major tech competitors, such as Amazon, Microsoft, and Alphabet, Google, the software giant ramped up its spending on infrastructure during the first quarter. This could have led to concerns that increased capital expenditures would crimp profits.
Oracle stock is 80% higher than the Nasdaq’s average return since the beginning of this year, as of Monday.
Here, we examine Oracle’s chart in greater detail and apply technical analysis to identify important levels of price after the earnings announcement.
Rise Wedge Breakdown
Oracle has been trending upwards since the end of June. The chart shows a rise wedge that could indicate a potential reversal to the downside in case there is a breakdown.
In recent weeks, after the stock reached a record high, it reversed dramatically intraday on a volume above the average, and closed the day lower. A dark cloud covered candlestick formed in the process.
The stock is poised to close below the lower trendline of the wedge on Tuesday, after the company reported weaker than expected quarterly results. This could open the way for earnings-related sales.
We’ll identify key levels of support on Oracle’s graph to monitor and use the “measured move” technique to forecast an upward price target that’s worth watching if the stock returns to its long-term trend.
Keep an eye on the Key Support Levels
First, we should be watching the $177 level. This price level, located below the 50 day moving average (MA), might provide support at the top of the range formed by a tight consolidation on the chart for most of October.
If the share price falls below the level of $165, it could lead to a slight pullback in the stock market that occurred at the end of September. This level might attract buyers near the bottom.
If the price breaks below this level, it could set up a retest at lower levels around $145. In this area, bargain hunters may find buying opportunities near the 200-day MA as well as several highs that appeared in June and in July.
The Measured Price Move to the Upside
The measured-move technique (also known as the measuring principle) can be used by investors to project a target price for an upward move.
For Oracle’s chart we add the amount calculated by the tool’s upper trendline to the distance between the widest and narrowest point of the rising wedge.
For instance, we add $35 to $201, which forecasts a target of $236—a level where investors could decide to lock in profits if the stock resumes its longer-term move higher.
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According to the article, as of its date of publication, the author did not hold any of these securities.
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