Palo Alto Networks provides a wide suite of enterprise-level, next generation firewalls. They have a really cool website, too. I’m a sucker for sweet set-ups. Let’s talk facts regarding the technical analysis of this chart.
PANW had a very nice stock run up from Nov 2013 – March 2014, very similar to its competitor, FEYE. However, as of recently PANW has stabilized in price and recovered much better than FEYE. The two black arrows point to some strong gaps on the chart of PANW. Both of these gaps are strong because after the gap up there was a black candle showing selling pressure and profit taking. Then the stock found support into the gap and bounced. As of 6/11/2014, the stock is trading sideways into an area of resistance, also known as supply. This price zone has been a strong resistance in the past, when selling pressure took over on PANW. Between May 29th and June 11th, the volume on PANW has drastically decreased as you can see from the orange arrow. Current price action is beginning to form a pennant pattern.
A pennant pattern looks like a small triangle and is a continuation pattern —meaning if this stock breaks bullish the trend will likely continue. Speaking of triangles, you can see the one I marked in blue. This was a large consolidation of price on PANW, and then it formed a double bottom and broke out bullish followed by a gap. This large consolidation allows sellers to take profits and new buyers to purchase at a lower price, building ‘pressure’ if you will, for the larger move ahead.
If you are a ‘longer term trader’, meaning you plan to be in this trade for a year or more, the initial stop could be placed in the gap, around $71. Shorter term traders’ stops could go around $76. To make for very easy targets, simply multiply the potential risk by two or three for a nice target. Therefore, if one’s risk on the trade is $10, $30 would be a sufficient risk/reward, setting a target at approximately $111.
This trade looks pretty, as most opportunities do. Remember, to trade your plan and mitigate your risk. Enjoy the weekend ahead!
