SIA Chartsâ relative strength rankings help investors manage risk by identifying stocks and sectors which are underperforming relative to their peers and/or their benchmarks and should potentially be avoided. Staying away from stocks that are not attracting capital can help investors to avoid areas at higher risk of absolute declines and relative underperformance and to reduce negative event risk.
Last week, Salesforce.com (CRM) shares plunged following the companyâs latest earnings report. SIA Charts relative strength rankings, however, had flagged the potential for trouble several weeks earlier. On April 25th a run of nearly six months in the green zone of the SIA S&P 100 Index Report ended with the shares dropping into the yellow zone, and then following the earnings plunge, CRM fell into the Red Unfavored Zone. Currently, CRM is sitting in 81st place, down 49 spots in the last month.
While in the green zone, Salesforce.com rallied 19.0% compared with a 12.4% gain for the S&P 100 Index. Since leaving the green zone, CRM shares are down 14.5% compared with a 4.2% gain for the S&P 100 Index.
Candlestick Chart Shows Distribution Accelerating. For nearly three months before last weekâs big selloff technical warning signs had been appearing in Salesforce.com (CRM) shares that suggested accumulation had turned to distribution. CRM peaked at the end of February and by the end of March, it had snapped an uptrend line and established a new downtrend line. In early April, CRM staged its first gap downward, decisively dropped under $300.00, and broke down below its 50-day moving average. Less than a week before the earnings report, the shares had another small gap downward.
Following Thursdayâs huge drop on big volume, the shares did bounce back Friday as the market rallied late in the day, but on lower volume. Initial downside support may appear at Thursdayâs low near $211.00, then the $200.00 round number or the October low near $193.50. Initial resistance appears in the $240.00 to $250.00 range between the top of an old gap and a big round number.
Point and Figure Chart Shows a Big Selloff Underway. A big winter rally in Salesforce.com (CRM) shares peaked back in March and since then they have been under distribution. Following an initial April decline, bulls were only able to muster up a 3-box bounce before bears took over again. In May, the shares completed a bearish Double Bottom pattern that signaled the start of a new downtrend. The ongoing retreat has extended the current column into a bearish Low Pole. Next potential downside support appears at a previous low near $208.25, then the $200.00 round number. A cluster of previous highs/lows and a horizontal count suggest potential support in the $184.90 to $192.40 zone. Initial resistance on a rebound may appear near $239.20 based on a 3-box reversal.
With a bearish SMAX score (which is a near-term 1 to 90-day indicator comparing an asset against different equal-weight asset classes) of 5 out of 10, CRM is exhibiting short-term weakness against the asset classes.
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