Bulls are getting a little pop to start the day, but I still see some issues with certain former momentum darlings in the tech space. I don't know if many have associated F5 Networks (FFIV) with momentum of late, but not too many years back it was a favorite of momentum players. Now, the momentum label has waned and the stock finds itself struggling to become relevant again to traders.
The daily chart is likely to catch bearish momentum traders' eyes. There is a clear breakdown from a bearish head-and-shoulders pattern Friday. The target here is $100 based on the breakdown, which would get downright ugly for FFIV. That would put the stock at a 52-week low, which would then attract more bearish momentum traders. Bearish moves beget more bearish moves.
One might want to point to the force index or relative strength index (RSI) at a higher low currently, but note that the big drop on Aug. 24 has skewed those lows. They still match with price. Instead, I would focus on the moving average convergence divergence (MACD) and the Chaikan money flow (CMF).
The MACD is worth watching based on the thesis the stock will base and move higher if we there is a bullish cross. The CMF has done a better job accounting for the Aug. 24 drop, so I'd be looking for a bullish divergence in that indicator, not necessary a cross back into the green. Those would be my keys if I wanted to trade a reversal. For now, we look headed lower.
FFIV can be a name that gaps, so I would stick with puts or put spreads to define my risk.
While the weekly chart doesn't give the same head-and-shoulders pattern, it still gives us a bearish breakdown. FFIV had been trading in an ascending triangle pattern, but lost the support levels last week. A second weekly close below $118 provides bearish confirmation.
We are two weeks into seeing trend, momentum and price averages already supporting the bearish thesis. The RSI, MACD and vortex indicator all went bearish on the rejection of the $135 area double top. We haven't yet seen the eight-week simple moving average (SMA) cross beneath the 21 week SMA, so a bounce this week should buy the bulls time. If I were move conservative, then I'd want to wait until mid-week to get a better feel for where FFIV might close out the week.
In the end, aggressive traders should focus on the daily chart and look toward $120 puts or possibly $115-$105 put spreads expiring in the next one to three months. Realize, though, earnings should hit shortly before Halloween, so that would increase the gap risk. Longer-term focused investors should focus on the weekly chart and get confirmation this week before taking any downside shots.