Palo Alto Networks (PANW) is in rally mode ahead of the market opening this morning. Traders and investors are reacting to the solid second quarter report last night. Prices are currently anticipated to gap higher by around 10% from Tuesday's close.
Will this become an exhaustion gap or will it be a runaway gap? The difference is significant. Let's check and see how the charts looked as of Tuesday's close.
In this daily bar chart of PANW, below, we can see that prices declined for about three months to a November nadir and prices have rebounded back to the September highs in a similar time frame. You may not think that a November low is significant but I think it stands out when so many stocks did not make their low until late December.
Stocks that bottom ahead of the pack are showing leadership. Prices declined below our two go-to moving averages in October and closed back above them in January. A bearish death cross of the averages can be seen in late November and we are likely to see a bullish golden cross of the 50-day and 200-day averages soon. Trading volume has not expanded from the November low but it has not declined either.
The daily On-Balance-Volume (OBV) line has been rising from early December to tell us that buyers are more aggressive. We won't get it today, but a new high in the OBV line would be a bullish signal.
The Moving Average Convergence Divergence (MACD) oscillator gave two cover shorts signals in November and crossed above the zero line in early January. This indicator has weakened during February but it could get a boost today. Prices are very likely to gap higher leaving a price void.
If prices continue to climb in the days ahead we could be looking at a runaway gap or a gap in a trend. If prices gap up and stall in the days ahead the risk could be that we are seeing an exhaustion gap and then PANW could become vulnerable to a decline. Stay tuned.
PANW is above the rising 40-week moving average line.
The weekly OBV line looks stronger than the daily line as it has made a new high in the past three months.
The weekly MACD oscillator is firmly in a bullish configuration.