Can Proofpoint Unlock the Upside?

 | May 19, 2017 | 10:12 AM EDT
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Proofpoint  (PFPT) beat a quick retreat from its recent highs this week. While the short-term picture suggests caution the accumulation seen over the past 10 months argues for new highs in the weeks and next few months ahead.

Let's take a closer look at a Point and Figure chart to analyze the accumulation and distribution pattern to make our case. And of course we won't ignore our other charts that we looked at earlier in the month.

In this daily bar chart of PFPT going back 12 months, below, we can see how prices have traded sideways to higher since last August. Declines below $75 look like they have been bought in October, December while rallies toward and above $85 have been sold in November, February and this month, too. 

The 50-day moving average line has moved mostly sideways since September, whipsawing traders who use this moving average for buy and sell signals. PFPT is now above both the 50-day and the 200-day moving averages and both have positive slopes. The daily On-Balance-Volume (OBV) line has been neutral since November but shows some improvement the past two months. The momentum study shows a small bearish divergence this month and I don't anticipate that it will be significant.

In this updated weekly bar chart of PFPT, below, we can see that prices are above the rising 40-week moving average line. This week's high/low range is plotted through Thursday so we don't know where the close today will be. A close in the middle of the range or even in the upper half will help tilt the odds for continued strength. The weekly OBV line shows new strength in the past couple of weeks and suggests that buyers have been more aggressive. The weekly Moving Average Convergence Divergence (MACD) oscillator is poised to cross to the upside above the zero line for a fresh buy signal.

In this Point and Figure chart of PFPT, below, we get a different view of the sideways consolidation pattern. If you take a ruler and draw a horizontal line across $79 or $80 you will see that there is more price activity below the line than above. The assumption with Point and Figure charts is that this area below the line is accumulation. If there was more activity in the upper half we would judge it to be distribution. Unless PFPT declines down through support I would still look for an eventual breakout at $89.

Bottom line: The overall pattern and price action on PFPT argues for a sustained upside breakout, but prices need to push above $85 and then $90 to impress.

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