Palo Alto Networks, Inc. (PANW) has benefited from a worldwide surge in cyber-attacks, forcing company executives to end years of neglect with aging IT systems and approve generous budgets to counter those malicious forces. The popularity of the company’s network and enterprise security solutions finally ended a persistent decline in April 2017, while more than a year of healthy buying pressure has lifted the stock to an all-time high.
More importantly, this bullish action has ignored the broad malaise that hit tech stocks in the first quarter, dropping many household names to multi-month lows. The resilience may continue well into the next decade because the hacking and misinformation crisis continues to expand at a rapid pace, possibly foretelling the full-blown cyber-warfare predicted by science fiction writers for the last half century. (See also: Tech Favorites: AI, Chips, Big Data and Cyber.)
PANW Long-Term Chart (2012 – 2018)
The company came public at $55.15 in July 2012 and entered an immediate uptrend that topped out at $72.61 in September. The subsequent downturn sliced through the IPO opening print in October and dropped into a trading range between that resistance level and the mid-$40s. A 2013 range breakdown attracted aggressive selling pressure, dumping the newly minted stock to an all-time low at $39.08.
A November 2013 test at that level attracted committed buyers, completing a double bottom reversal that signaled a new uptrend. The rally pierced the high posted after the public offering in the first quarter of 2014 and took off in a momentum-fueled advance that lifted the company into market leadership. Healthy buying pressure continued into July 2015, when the uptick finally stalled a few cents above $200.
A January 2016 double top breakdown generated a volatile downtrend that posted a series of lower highs and lower lows into April 2017, when the stock bottomed out at a 2.5-year low. Price action into that level carved a lower highs trendline that was tested unsuccessfully during a bounce into July, while a September breakout generated mixed action into year end, followed by a 2018 buying surge that has added more than 60 points.[Check out Chapter 2 of the Technical Analysis course on the Investopedia Academy to learn more about drawing trendlines and using them to establish your trading strategy]
PANW Short-Term Chart (2017 – 2018)
Buying pressure accelerated in February 2018, when the uptrend cleared stubborn resistance at the double top breakdown near $160. It stalled at the 2015 high in April, consolidated near that barrier and broke out on May 8, while two-sided action in the past two weeks has held new support. Even so, the rally hasn’t escaped a three-month rising wedge pattern, increasing vulnerability to a failed breakout.
On-balance volume (OBV) topped out in December 2015, five months after the July price peak, and entered a distribution wave that held in the upper half of the long-term range. Buyers returned in May 2017, while the subsequent uptick surged to an all-time high in March 2018, ahead of price breakout. This bullish divergence resolved in the May breakout, signaling intense institutional sponsorship that should resist selling pressure.
Informed marked players will avoid new positions here while they focus attention on the edges of the rising wedge. The gap between pattern support and resistance continues to shrink, with less than 10 points separating those boundaries. In turn, this establishes a rock and a hard place setup, forcing a showdown between buyers and sellers. Whoever wins this mini-battle may control price action through the summer months, with bulls lifting the stock toward $250 or bears completing a failed breakout that targets $175. (For more, see: Cisco’s Slump Good for Arista, Other Rivals.)
The Bottom Line
Palo Alto Networks stock broke out to an all-time high in early May and is now trading about 10 points above new support within a rising wedge pattern. This price structure can end momentum buying pressure, so the safest path is to stand aside and wait for the stock to exit the pattern, higher or lower. (For additional reading, check out: 3 Ways to Trade Cybersecurity in 2018.)
<Disclosure: The author held no positions in aforementioned securities at the time of publication.>