This past Friday night Jim Cramer spoke with Red Hat Inc. (RHT) president and CEO Jim Whitehurst on his Mad Money show. RHT is an open-source software provider and its stock price plunged sharply last week. Let's check out the charts and indicators for some guidance on the stock price and leave the earnings' guidance to someone else.
In the daily bar chart of RHT, below, we can see a large downside price gap with heavy volume. RHT gapped below the rising 50-day moving average line and ended trading Friday just short of the rising 200-day line. There is a band of support in the $130-$120 area from October to the middle of February. This area acted as resistance on the way up and can hopefully act as support on the way down.
The daily On-Balance-Volume (OBV) line turned down to break a 12-month advance. In the lower panel is the 12-day price momentum study which shows lower peaks from late February to June. This tells us that price momentum was weakening on the way up -- the pace of the rally was slowing ahead of the bearish gap. This bearish divergence was foreshadowing weakness.
In this weekly bar chart of RHT, below, the price gap disappears but the price damage remains. Prices declined to the rising 40-week moving average line. The same $130-$120 support area can be seen. The weekly OBV line dips and the Moving Average Convergence Divergence (MACD) oscillator crossed to the downside for a take profits sell signal.
In this Point and Figure chart of RHT, below, we can see the sharp decline without the gap. A bearish downside price target of $103 is being projected but we can also see the potential support area around $130-$120 here, too.
Bottom line: Spillover or carryover selling from last week is likely. A break of the rising 200-day line is also likely. Some buying is also like to develop around $130, the top end of the $130-$120 support area. A close below $125, the mid-point of the support zone, could precipitate further selling.
