Key Takeaways
- Oracle shares slumped in extended trading Monday after the enterprise software company missed fiscal second quarter adjusted earnings estimates and issued tepid guidance.
- The stock sits poised to break down below a rising wedge, a chart pattern that signals a potential downside reversal.
- Investors should watch key support levels on Oracle’s chart around $177, $165, and $145.
- A measured move, which calculates the distance of the rising wedge near its widest point and adds that amount to the pattern’s top trendline, projects an upside price target of $236.
Oracle (ORCL) shares slumped in extended trading on Monday after the company reported fiscal second quarter adjusted earnings below Wall Street expectations and issued weak guidance amid increasing competition among cloud services providers.
However, the enterprise software company’s cloud infrastructure revenue surged 52% from a year earlier due to soaring demand for computing power that can run large artificial intelligence (AI) workloads, mostly matching what analysts had expected.
Intensifying competition in cloud services from big tech rivals, including Amazon (AMZN), Microsoft (MSFT), and Alphabet’s Google (GOOGL), saw the software giant significantly ramp up infrastructure spending during the quarter, possibly raising concerns that increasing capital expenditure (CapEx) could crimp profit margins.
The AI narrative surrounding Oracle has helped propel its stock more than 80% higher since the start of the year as of Monday’s close, far outpacing the Nasdaq composite’s 31% return over the same period.
Below, we take a closer look at Oracle’s chart and use technical analysis to point out important post-earnings price levels to watch out for.
Rising Wedge Breakdown
Since late June, Oracle shares have trended higher within a rising wedge, a chart pattern that indicates a potential downside reversal upon a breakdown.
More recently, the stock climbed to a new record high on Monday before staging a dramatic intraday reversal on above-average volume, closing lower for the day and forming a bearish dark cloud cover candlestick pattern in the process.
In an ominous sign, the stock sits poised to gap below the wedge’s lower trendline on Tuesday after the company’s weaker-than-expected quarterly results, potentially opening the door for follow-through earnings-related selling.
Let’s identify several key support levels on Oracle’s chart to watch and also use the measured move technique to project an upside price target worth monitoring if the stock resumes its longer-term uptrend.
Key Support Levels to Watch
The first support level to watch sits around $177. This price point, currently situated just below the 50-day moving average (MA), could provide support near the upper range of a narrow consolidation period that formed on the chart throughout most of October.
Selling below this level may see the shares fall to the $165 level, a level that could attract buying interest near the trough of a minor pullback that took place in late September.
A decisive breakdown below that price sets the stage for a potential retest of lower support around $145. Bargain hunters could look for buying opportunities in this region near the closely watched 200-day MA and several peaks that emerged in June and July.
Measured Move Upside Price Target
To project an upside price target, investors can use the measured move technique, also called the measuring principle.
To apply this tool to Oracle’s chart, we calculate the distance of the rising wedge near its widest point and add that amount to the pattern’s top trendline.
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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As of the date this article was written, the author does not own any of the above securities.
