So, as I keep an eye on Salesforce.com‘s stock, it’s clear the stock sits on a knives’ edge.
Back in December I wrote about Salesforce acquisition of Slack. At that time traders punished the stock price. Investor’s appear to believe management overpaid. Big time! As a result, the stock is stuck in a bearish trading pattern.
More importantly, the chart clearly shows what I call a “stop hunting zone“. What is a “stop hunting zone” you ask?
Well, it’s a technical setup where the chart forms an extended support level. See the chart below for an illustration.
In this case, the $215 price level is very important. Buyers (or longs) must dig in their heels and hold this level. Otherwise, if the support level fails, price could easily drop to the $200 level.
What is STOP HUNTING?
Simply put, big institutional traders with deep pockets love to target “stop hunting zones“. In effect, traders flood the market with sell orders. And the goal is to trigger stop loss orders. Buyers like to place stop loss orders right below technical support levels. In reality, if correctly executed, sellers can drive the price significantly lower and end up adding to their positions at a much lower price. This is great for the traders and bad for everyone else.
To put another way, don’t use stop loss orders. Instead, look for stop hunting zones and wait to see if a buying opportunity presents itself.
So, we are at a critical point – salesforce.com’s stock sits on the edge.
Conclusion
Although I believe Salesforce.com is a fantastic company and belongs in your portfolio. Indeed, now is a time to be patient if you are considering buying the stock. Or adding to an existing position.
On the positive side, Salesforce.com has a history of disrupting existing markets and creating new ones. As a result, the company’s growth has been fantastic. For this reason, you should expect the stock to rally.
On the negative side, short-term selling pressure is testing the resolve of long-term investors. However, a decent buying opportunity could be right around the corner.
At the end of the day, Salesforce.com is an internet based company that is set to dominate and long-term investors will reap the capital gains.
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