Stocks normally go through a cyclical pattern of bull and bear phases. The recent pullback in growth stocks has reminded market participants of how quickly the bearish rotations can completely change the character of the markets. And while some may be tempted by stocks like Salesforce.
com (CRM) showing short-term strength after recent weakness, savvy investors know that the charts will often provide a clear signal of a recovery phase. The daily chart of CRM illustrates a clear bullish period from the October 2023 low to a peak around $320 in late February 2024. From that peak, we can draw a simple trendline to track the fairly consistent pace of the decline that arguably remains in place in early August.
I would point out that the most bullish piece of evidence for CRM is the impressive rally off the gap lower in late May. When a stock gaps lower, usually around a quarterly earnings release, it's important to see what happens right afterwards. Are investors buying in on the short-term weakness, thrilled to pick up shares of a quality company at a discount? Or do we see evidence of further selling, as traders are willing to take a loss to avoid an even bigger potential loss in their account? In the case of CRM, we can see that buyers came in after the gap lower, quickly pushing the price from a low around $210 back up to $165 in early July.
What to watch But even though the upside reaction was indeed impressive, three factors prevent me from considering Salesforce.com as an at.