The American multinational cybersecurity company with headquarters in Santa Clara, California, whose core products are a platform that includes advanced firewalls and cloud-based offerings that extend those firewalls to cover other aspects of security, Palo Alto Networks Inc. (NYSE: PANW) seems to be getting ready for a price bump according to the charts.
Bullish Move – Chart Indications
#1 Channel Breakout: As you can see from the daily chart, the stock was trading within a downtrend channel for the past several weeks. This is shown in pink color lines. The stock had typically taken support at the lower rail of the channel before bouncing back. The stock has currently broken out of the channel with high volume after taking support near the trendline (purple color line). The stock also crossed above a strong resistance area (orange color dotted line). All these are possible bullish signs.
Daily Chart – PANW
#2 Trading Above MAs: The stock is currently trading above its 50-day as well as 200-day SMA, which implies that the bulls are currently in control.
#3 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart. This indicates possible bullishness.
#4 MACD above Signal Line: The MACD (light blue color) is currently above the MACD signal line (orange color) in the daily chart. This typically indicates a bullish setup.
#5 Bullish ADX and DI: The ADX indicator shows bullishness in the daily chart because (+DI) is greater than (-DI), ADX line and the (+DI) line is above the (-DI) line, and ADX has started rising from below both (+DI) and (-DI).
#6 IH&S Pattern: From the weekly chart, we can see that the stock has been consolidating in the form of an Inverted Head and Shoulders (IH&S) pattern. This is marked in the chart in orange color. An IH&S pattern is a bullish pattern. A breakout from an IH&S pattern is usually the sign of an upcoming bullish move.
Weekly Chart – PANW
#7 Bullish Stochastic: The %K (blue) line of stochastic is currently above the %D (Orange) line in the weekly chart. This is a possible bullish indication.
#8 Support Area: The stock is trading above a strong support area, which is marked as a pink color dotted line. This is a possible bullish indication.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy area for PANW is above yesterday’s close, at around $279.00.
TP: Our target prices are $285 and $300 in the next 2-4 months.
SL: To limit risk, place a stop loss below $275.00. Note that the stop loss is on a closing basis.
Our target potential upside is nearly 2% to 8% in the next 2-4 months.
For a risk of $4.00, our target rewards are $6.00 and $21.00. This is a 1:2 and 1:5 risk-reward trade.
In other words, this trade offers almost 2x to 5x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the channel and goes below it. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Happy trading!
— Tara
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