The charts say more pain for Salesforce could be ahead in the short-term before bottoming

Published Thu, May 30 202412:31 PM EDT

Shares of Salesforce.com (CRM) plunged this week post-earnings , pushing this technology name below its 200-day moving average for the first time since the October 2023 low. What do the charts say after this sudden 20% drop in price? Unfortunately for CRM, we see further downside in store before a potential buying opportunity presents itself. Let's set the stage for this discussion by analyzing the conditions before this week's earnings report. After making a new all-time high of around $318 in early March, Salesforce demonstrated choppy, sideways price action into mid-April. A gap lower in price pushed CRM below its 50-day moving average, which often serves as an early warning sign of an impending trend change. From mid-April until this week, Salesforce has again settled into a sideways price range, this time between $268 and $290. Notice how in mid-May the price finally "closed the gap" and retested the $290 level? This move also bumped up against a declining 50-day moving average, serving as resistance to push the price back to short-term support around $268. The momentum characteristics have been steadily declining as well, with the Relative Strength Index not quite reaching up to the 60 level on the mid-May rally. When a stock is in a confirmed downtrend, the RSI usually struggles to get above 60 on the countertrend rallies, so Salesforce has seemed to show all the signs of a confirmed downtrend phase. While CRM was in a somewhat precarious position leading into this week, the gap lower post-earnings represented a sudden revaluation for this former technology leader. How do we make sense of the technical configuration after this sudden change in character for the chart? Using Fibonacci retracements, you'll see that Thursday's open around $222 was almost exactly a 50% retracement of the December 2022 to March 2023 bull phase. So we now have a new anchor price which to assess the general character of the chart, because any further closes below that 50% line would represent additional weakness. And until and unless CRM is able to push back above that 50% retracement level, the dominant trend appears bearish. $200 the bottom? Given the negative price action going into this week, accentuated by the gap lower on Thursday, we'd expect further downside to the 61.8% Fibonacci level around $200. Look to the left, and you'll see that this lines up almost perfectly with the lows from August, September, and October 2023. This "confluence of support" gives us a potential downside target and suggests more pain to come before Salesforce is likely able to turn things around from a technical perspective. While we now have a reasonable downside target, it's also important to also look for signs of accumulation in the form of improving short-term technical patterns. CRM is currently in a clear downtrend pattern of lower highs and lower lows. We would need a higher low, representing an influx of buying power, to suggest any deviation from the current downtrend phase. Until then, this is a chart showing all the signs of further deterioration ahead. -David Keller, CMT marketmisbehavior.com DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.