Will the Bulls Step Up for Palo Alto Networks?
The cybersecurity stock closed green in a sea of red Thursday. Here's how our game plan is playing out.
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When a stock can shake off negativity and grind higher, that’s a positive sign. That’s exactly what happened with Palo Alto Networks PANW this week, and it could be a sign that the stock is about to move higher.
Palo Alto Networks reported earnings after Monday’s close, followed by a wild market reaction at Tuesday’s open. Shares of the Santa Clara-based cybersecurity provider shot lower by 6%, falling from $324 to $304, after the company came out with a solid, but unspectacular earnings report. Earnings and revenue were slightly higher than expected, but it wasn’t enough to excite investors.
Next came the moment of truth. Would the bulls buy the dip? Do they believe strongly in this company, or would they step back and allow Palo Alto to fall further?
The bulls stepped up. Palo Alto nearly filled the entire morning gap, as seen on the stock’s intraday chart.
On Thursday, the bulls stepped up again, as Palo Alto outperformed the market. On a day when the major indexes were trounced despite Nvidia’s NVDA blowout earnings, Palo Alto held serve. The stock closed green as the markets turned to a sea of red.
In our initial game plan, we entered a half-sized position in Palo Alto Networks with the option to add more shares after earnings. Tuesday morning’s dip provided that opportunity, so we have now lowered our cost basis to about $310.
Palo Alto is using its bullish trendline as support (black dotted line). The stock is trading above its 50-day (blue) and 200-day (red) moving averages, as well as the trendline.
The increase in volume on Tuesday leads me to believe this rally could continue. Tuesday’s volume was the highest for Palo Alto in nearly three months (green arrow).
We’re maintaining our $360 target for this stock, partially based on the gap from Palo Alto’s previous earnings report (point A). If the stock can fill that gap, our target will be achieved.
Palo Alto Networks’ earnings report wasn’t impressive. However, while earnings are important, there are other factors at work.
Apple AAPL, for example, has been on a tear since the company reported soft earnings at the start of this month. In this case, a massive stock buyback overshadowed the company’s earnings report.
Over the past three weeks, Apple has gained about 9%. Unlike Palo Alto, shares of Apple were dumped in Thursday’s selloff, but the stock maintains strong support near $180.
Ultimately, buyers and sellers decide the fate of a stock. In the case of Palo Alto Networks, buyers are stepping up at opportune moments, and that bodes well for stock going forward.
At the time of publication, Ponsi was long PANW and AAPL.
