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.
In this weekly bar chart of PANW, below, we can see how PANW has doubled over the past two years. The deep pullback or retracement to $160 in recent months took prices back to major support from 2016-2017.
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.
In this weekly Point and Figure chart of PANW, below, we do not yet have today's opening. The bar daily bar chart (above) will probably have a large price gap but this Point and Figure chart when it is updated will not have a gap. The prices will be filled in. A longer-term price target of $362.
Bottom line strategy: Technical analysis is like a wind sock at the airport. It can tell us the general trend and direction and maybe the intensity but it is not a crystal ball. Let's stay bullish on PANW but continue to watch it closely for further clues. Meanwhile, tighten sell stops to $220.
As cloud giants digest some of their past investments in hardware and chips, they're still investing heavily in growing their data center capacity. That's ultimately a positive for data center REITs and chip suppliers with cloud exposure.
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