Cloud service provider ServiceNow, Inc. (Today), has gained more than 35% since its entry in the S&P 500 index in November 2019, shaking off a 34% decline during the first quarter of the pandemic driven by swoon. The resilience of the highlights of the superb performance since the stock came public in 2012, the lifting of more than 1,400% since the first trade in the mid-$20. A rapid growth trajectory, has supported the extraordinary advance, with the society today is the 93rd most capitalized index component.
Wall Street has been pounding the tables on ServiceNow stock, the display 19 BUY ratings, HOLD five ratings and no SELL ratings. However, the rally is now lifted in the upper half of the 12-month price targets, increasing the potential of the discount if quarterly performance fails to match the high 112 price-earnings ratio (P/E). The company has offered no guidance since the month of April for the first quarter of 2020, when it forecasts sales growth of 29% to 30% for the first quarter and from 28% to 29% for the year.
Technical indicators generally support the upward trend, but the growth of red flags should not be ignored. First of all, the shares have rallied above the February high in May, but has made little progress, raising the odds for a failure of the escape. Secondly, the purchasing power hasn’t kept up with bullish price action, indicating that the supply of potential investors is declining. Thirdly, the rally has reached a resistance level which has triggered three major downturns in the past 22 months.
NOW, in the Long-Term Chart (2012 – 2020)
The stock eased in a strong upward trend after the month of June 2012 of the initial public offering (IPO), raising $41.77 in September. The decline in subsequent finishing a few points above the ipo opening of the printing, the strengthening of the support in the middle of$20, before a slight increase, which has made a return in the state of the high in April 2013. A July breakout carved out a nice series of higher highs and lower before stalling just above $70 in the first quarter of 2014.
A rally above this barrier, a year later, little progress, reaching the low $90’s, before the beginning of 2016 decline triggered a failure of the escape. The decline attenuated near a two-year low, while the subsequent rebound has been more than 14 months to post a new high. The upward trend, and then entered the most prolific period, from his arrival in public, it has more than tripled in price in February 2020 high. The inventory is sold with a broad benchmarks in March and recovered to the same path, the break of a new high once more, on May 5.
The price action since August of 2018 has carved out an expanding wedge pattern, with a proportional rallies, but gradually a severe drop. Current shareholders should take note of the recent cancellation at the corner of the resistance, because it raises the odds for a correction that has the potential to reach the $ 270s. While the recovery is just a red flag for the moment, a decline that undermines the February high would have triggered a major sell signal.
NOW, in the Short-Term Chart (2018 – 2020)
The balance volume (OBV), the accumulation-distribution indicator posted a 10-month low in November 2019 and is entering a phase of accumulation, which has reached the previous peak, on May 20, two weeks after the escape. OBV has not moved since that time, while the price action has carved a series of whipsaws in new media. The combination warns the actors of the market who has committed the bears are in dispute avoidance and could trigger a reversal that undermines the black line. The 50-day exponential moving average (EMA) would act as the final arbiter of the rally, the generation of a bounce or breakdown.
There is not much for shareholders or potential investors to do at this point, except to tighten stops and watch the ticker tape, with an eye on the S&P 500 index. As we have seen in the first quarter of the collapse of the algorithmic and human sellers to focus their attention on the major funds in the sector over large periods of recession, and the stock could easily get shot by a support if the SPDR S&P 500 ETF Trust (SPY) and the S&P 500 futures get targeted for sale.
The Bottom Line
ServiceNow stock has exceeded the wide markers up to this in 2020, but the cracks are beginning to appear in the strong upward trend.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.