I wrote about Oracle (Nasdaq: ORCL) in this space back on May 20 as the stock was approaching its all-time high of 44.20. At that time, I took a pretty bearish view of ORCL as the stock was overbought on its daily, weekly and monthly charts and I suggested that readers short the stock with a target of $37.
The stock didn’t fall right away, but it has fallen over the last few weeks after the company issued their earnings report on June 19. In my previous article, I pointed out how Oracle was susceptible to gapping after earnings reports. In fact, on the daily chart below, you can see a downward gap in June 2013 and an upward gap in December. Both were on earnings reports.
Because of this daily chart, I have changed my short-term outlook on ORCL from bearish to bullish. Two factors in particular have caused this change of heart: the stochastic readings being overbought territory on the daily chart and the support the stock is receiving from its 100-day moving average. A similar pattern developed back in December when the stochastic readings were oversold and the stock was resting on the moving average. That instance came just ahead of the earnings report that sent the stock climbing 17% in just over a month.
Looking at the weekly chart, we see the same trend channel that has defined the price over the last year- the same one that is in the daily chart above. The lower rail of this channel is around $39 and should provide ample support should the 100-day moving average give way to pressure. We also see how the last few weeks of trading have brought the weekly oscillators out of overbought territory.
The sentiment has moved more toward the bearish side since the previous article in May and that is yet a third reason for changing my view on ORCL from bearish to bullish. The short-interest ratio has jumped from 1.7 to 2.7 in the last month and half. The put/call ratio has also risen, moving from 0.55 to 0.81 and that moved the percentile ranking from 4% to 56%.
I didn’t cover Oracle’s fundamentals in the last article, but looking at them now, I can tell you the company has been performing well. The company has averaged EPS growth of 6% for the last three years and they have experienced EPS growth for four straight years. They have a pre-tax margin of 44% and the ROE is 28.9%. All of this adds up to the company outperforming 75% of all publicly traded companies when it comes to earnings performance.
At this point the stock looks like a buy to me. The resistance at $44.20 is still there, but now that the stock isn’t so overbought and the fact that the sentiment has shifted away from its bullish extreme, the stock stands a better chance of breaking through that resistance.
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