In the zone
03/21/18

Oracle (ORCL)—the tech firm that brought you Java, among many other goodies—watched its stock fall more than 10% yesterday after the company released earnings that topped estimates (by 15%), but revealed a slowdown in its transition to a cloud-based model that dampened enthusiasm about near-term growth. KA-BOOM. Shares that closed Monday at $51.95 opened at $46.80 yesterday.

Where does that leave ORCL shares? Somewhere very interesting, actually. The move, which bottomed intraday at $46.43, brought ORCL to the neighborhood of its January and February lows—a neighborhood that is also home to the bottom of the huge June 2017 up gap (below).

Oracle (ORCL) 5/23/13–3/20/18. ORCL price chart, support level.

Source: OptionsHouse

A look at a weekly chart (below) shows the 8.6% June up gap represented an Olympic-caliber pole vault above a resistance level dating back to ORCL’s dot-com era peak in 2000. Oracle shares twice tried to push past this level (in December 2014 and March 2017) before definitively closing above it in June. The stock’s broadening consolidation since then has seen the stock bang out a few new marginal record highs along with the lower lows that eventually filled the gap on the daily chart.
Oracle (ORCL) 5/11/98–3/20/18. ORCL weekly price chart. Resistance turned support

Source: OptionsHouse

Many traders would view a solid break below this former-resistance-now-support level as a bearish signal for ORCL shares, but that didn’t happen yesterday. In the meantime, bullish traders looking for a rebound are likely to see the stock currently trading at a very attractive discount and at a very conspicuous technical level.

Options traders were, not surprisingly, getting in on yesterday’s action, too—and there appeared to be some bullish sentiment in this arena. ORCL showed up in a LiveAction scan of unusual options activity early in yesterday’s session (below): Halfway through the trading day, volume in ORCL call options was almost three times its daily average.

LiveAction scan: ORCL, unusual call option volume.

OptionsHouse

Additional scans showed even higher put options volume, but further research indicated that some of the largest of these trades were new short positions in April $45 puts, which suggests some traders were anticipating at least a short-term rebound in ORCL shares, and may have been taking advantage of options premiums that were inflated by the stock’s sudden drop.

And a final bit of perspective: ORCL has had 137—count ‘em, 137—previous one-day drops of 6-10% since 1986 (the most recent one was on September 15, 2017). The stock closed up 57% of the time the next day for an average gain of 1.1%; after five days ORCL was up 69% of the time with an average gain of 3.2%.

Market sages often warn against trying to “catch a falling knife”. Oracle is likely to soon show whether the knife is safely stuck in the floor of technical support, or still on its way to a lower target.

Market Mover Update: Speaking of big down moves, EPAM Systems (EPAM) fell more than $4 (3.5%) on Monday to a low of $114.82 before rebounding to close the session at $119.10, slightly up on the day. The one-day pullback dropped the stock back into its previous consolidation (on an intraday basis) and left the stock very near the initial breakout level described in “Tech breakout”. Midway through yesterday’s session, the stock was trading modestly higher.

 

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