$CRM Salesforce.com Inc – A Force to be Reckoned With – August 23, 2021

Bullish – CRM – $256.13

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Market Outlook:

Equities pulled back for the majority of last week and recovered slightly on Thursday and Friday. While key levels for SPY and QQQ remain intact, weakness in small caps is a cause for concern with the iShares Russell 2000 ETF declining to $213 where it found support to rebound on Friday. Yields seem to be in the middle of forming a bottoming formation with 10 Year Yields finding support at 123 basis points. A rebound here will provide attractive opportunities for stocks in the Financial sector. 

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CRM Bullish Trade Idea:
Our bullish trade is Salesforce.com (CRM). Investors should note that this is an earnings play with CRM announcing earnings on Wednesday, August 25th. The expectation is for CRM to post a strong quarter. From a technical perspective, CRM has shown an increase in relative strength and broke above the $250 resistance level recently heading into earnings. 

As this is a debit spread, look to take profits at 75%-100% gain and cut losses at 50%:

Take Profit – $11.55 – $13.30 Credit

Stop Loss – $3.32 Credit

Look to close the trade at 21 days to expiration if neither the take profit or stop loss level has been reached. View CRM Trade

Sector Outlook

The Relative Rotation Graph (RRG) for sector rotation indicates that there is healthy sector rotation and broad leadership with 6 sectors in the Improving and Leading categories and 5 sectors in the Lagging and Weakening categories.

Leading (positive relative trend and positive relative momentum): Healthcare and Staples are the new entrants to this category with both experiencing an improvement in relative strength. However, the weaker momentum displayed by Financials and Materials is concerning, and may see a cross over to the Weakening category should this continue. 

Weakening (positive relative strength and negative relative momentum): There are no sectors in the weakening category this week with Healthcare moving to the Leading category.

Lagging (negative relative trend and negative relative momentum): 5 sectors are in the Lagging category this week with Energy experiencing a sharp decrease in relative strength. Tech, Discretionary, Real Estate and Communications are showing signs of improving relative strength and look likely to move to the improving category should this continue

Improving (negative relative trend and positive relative momentum): Only Industrials are currently in the improving category. However, Industrials continues to show weakening momentum which may see the sector fall back into the Lagging category.

XLY

Discretionary is currently in the Weakening category with low momentum relative to its peers. However, the pullback in XLY does provide an attractive “buy the dip” opportunity with the sector finding support at $175.

XLF

Financials spent the majority of last week in the red after declining to the previous $37 range resistance which may turn into support should price stay above this level. With yields showing signs of capitulating, we may see Financials continue higher in the coming weeks. 

Market Observations

  • IBM – Decline to the $137 level and bounced higher with strong momentum after finding support and forming a triple bottom.  
  • DIS – Remains rangebound and reversed after finding strength at the bottom of its range near $172. Credit Spreads may be the strategy of choice at current levels
  • MSFT – Broke above and successfully retested the $290 support level and continues to rally with strong momentum to new all time highs. Look for dips in price for better risk/reward bullish exposure
Tony Zhang