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Palo Alto Networks Remains In Bullish Trend - Buy The Dip

Palo Alto Networks (PANW) fell over 22% after reporting earnings that beat, with weak forward guidance.

The second quarter report placed earnings at $0.63 per share with revenue toping $422 million. All in all, a pretty good report, and regardless, not enough to justify the selling pressure.

The catalyst for selling is two-fold and often gets lost in the news. Of course, the forward guidance was weak. The Palo Alto Networks reported $0.54 to $0.56 estimated earnings per share for next quarter (fiscal third quarter), well under the anticipated $0.70 a share. Revenue expectations are lower too, with $452.6 million expected, but the company projecting $406 to $416 million.

Ok, so that's what you already know and read, but there's another factor that is key. The charts, and by that I mean the pattern the company traded made the stock ripe for a fall. Keep in mind, the charts aren't crystal balls and they don't predict future pricing, albeit they are able to predict odds, and in the markets, small edges make huge differences. One of the key market timing indicators I use with my trading is the same used by the largest hedge funds in the world. Tom DeMark Indicators are the only chart enhancements other than my own proprietary (and generally short-term) I use for market entry and exit. 

Palo Alto Networks Weekly Stock Chart Bullish 3-2-17

Two weeks ago, the chart pattern gave the classic TD13 sell indication. In itself, it's noteworthy, but not much else. Combined with other technical factors, and a catalyst, such as a poorly received guidance report, it spells the top of a market. It's beyond the scope of this article to go into the details of a TD13 for a buy or sell, but in a nutshell, it's based on human behavior and attempts to mark a time that investors interested in a stock have either fully invested, or fully sold. Other factors such as greater awareness and changes to the industry have huge impacts, so they're at best an indication, and not a "signal". 

One major takeaway, and the reason for my bullish entry yesterday is the trend remains intact for two reasons. The shorter moving averages continue to move from the bottom left to the upper right, and more importantly in my opinion, is the drop didn't "break through" the most important 200 MA average. The 200 week moving average is the most important because it represents long-term investor sentiment better than anything else I know. I also strongly believe that on the weekly (or daily for that matter) charts, a breach through a 200MA is almost always followed by a retracement back towards the starting point. In other words, the breach yesterday below the weekly 200 MA is likely to be met within two days with enough buying pressure (or lack of selling as the case may be here) that the stock will naturally (again "naturally" means how investors react to a give stimulus) move higher. 

Unless Palo Alto Network's stock can maintain it's price below this rising level, it remains bullish, AND the best part, it's at the lowest end of the bullish trend. In other words, this is the lowest risk entry point to buy (PANW) the market has witnessed in months. It doesn't mean it's a "sure thing", but again, I don't predict the future, I predict the odds. I like the odds with Palo Alto at this level and have positioned myself to profit if it bounces, especially into yesterday's closing bell. Historically, stocks falling as much as this one has will experience a "dead cat bounce" within three days of the event. Usually it's within the first day, and the second most common is the second day, followed by the third. That makes an entry even more appealing, because usually, if your early at this point, you're fully recovered within four or five days. And if you're not early, the bounce can be substantial. 

The other factor is the market as a whole is trending higher. This makes strong company dips attractive because a rising tide will raise all boats, especially in tech. Cisco (CSCO) is a factor, as well as Juniper Networks (JNPR) and even Intel (INTL) and IBM (IBM), and will always be. That said, other than fear, I'm not sure why the stock fell as much as it did, and I suspect many that sold yesterday, and maybe at the open today are wondering why they allowed their fear to impact their investing. Don't be that guy. Have a plan, stick to the plan, including a stop loss, but if one day of trading can impact what you're doing, you're likely not a very good investor. 

Bottom line.....Buy the dip, even if you already have shares. Hold your nose if you must, and turn off the investment news if it's taking too much of your time, but let the dust settle for a few days. You're portfollio will be happy you did. If, next week you feel like selling, go ahead, but then the crazyness of the drop will not impact your decision making as much and you may find you like owning this tech giant at this price. I know I do.

 

 

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Stock Tickers: Author Disclosure: long PANW
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