Chart of the Day: Why Now Is Not the Time to Buy This Stock
A sharp pullback on an analyst downgrade was the reason, but volume was heavy, too.
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We recently added ServiceNow NOW to Then Street Pro portfolio and believe its best days lie ahead. However, on Monday July 8, an analyst said he believed differently, downgrading the stock to a rare "Sell" rating, which helped guide sellers in the name and push the stock down roughly 5% on the day.
Volume was high as you could imagine as NOW gapped lower and barely recovered to close near highs of the session. Regardless, the stock remains in an uptrend, but the quandary created by this gap down has investors (like us) wondering if this is a safe spot to nibble and add shares. We don't think NOW is the time for it.
When a large move down happens especially in the face of a strong market it is right to step back and take a pause rather than aggressively add on the first drop. While it may seem totally unwarranted based on fundamental data, we must respect the technical aspect of the chart and take our time.
Momentum (stochastics) have started to roll over, and the Moving Average Convergence Divergence (MACD) is just about on a sell signal. Notice the trend lines in the top pane, the stock has moved aggressively below those levels. Further, candles have flipped from blue to teal, now cautious in the GoNoGo composite.
We see some lower levels as a more attractive entry point, the 50-day moving average at $732 and further below the 200-day moving average at $703 or so. We suggest waiting until this selling has subsided as we are doing.
We rate ServiceNow a Two in TheStreet Pro portfolio.
At the time of publication, TheStreet Pro Portfolio was long NOW.
