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Oracle (NASDAQ: ORCL), like many of the stocks I write about, came to my attention due to my nightly scans, but by looking at daily, weekly and monthly charts, I was able to see the whole picture.
There were a few things on the daily chart that stood out. First, Oracle stock is tremendously oversold with both the stochastic readings and the 10-day RSI hitting their lowest levels for the past year. There is also possible support in the $40 area. While these are positives for the stock, it wasn’t enough to convince me to take a bullish stance.
The weekly chart showed more ammunition for a bullish stance with the stock sitting just above the lower rail of a trend channel that has dictated trade for the last three years.
The oscillators are also encouraging with both in oversold territory, but the 10-week RSI stood out more because it is in an area where it has reversed in three previous instances over the last three years. Each time the RSI got this low, the stock proceeded to rally for the next two to six months with each Oracle rally producing a move of at least 20%.
Looking at the monthly chart, we see that Oracle hit its all-time high back in December at $46.42, eclipsing the old high that was reached in September 2000. After taking out the old high, the stock moved sideways for the next five months until the recent drawdown brought it down to the lower rail of the channel.
The stock will have to move through the possible resistance at the new all-time high if the pattern of 20% gains after the 10-week RSI moves below 35 is to continue. The stock will have to move 15% higher before it hits that resistance.
Something that surprised me about Oracle was the sentiment toward the stock. There are 40 analysts following the stock; 21 rate it a “buy,” 16 rate the stock as a “hold” and three rate it as a “sell.” Seeing nearly half of the analysts rate the stock as a hold or lower is surprising considering the stock has tripled since the low in 2009 and the company has averaged 7.5% growth for the last five years.
I would look to buy Oracle in the $40 to $41 range with a minimum target of $46 over the next three to six months. Once the stock gets to the all-time high, you will want to see how it reacts at that time. If it stalls there, you may want to sell part of the position and lock in some gains. I would keep part of the trade open to see if the stock can break through and try to capture even greater gains.
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