Chart Analysis for ServiceNow #NOW

I have owned this for a long time thanks to MF and it is a great company and a great stock. It has very high IBD rankings and is currently in a flat base waiting to break out. You can see my red tick-marks in the table in the upper left. A rating if 99 means it is better than 99% of the companies followed. This has had a couple good base breakouts starting with the Market Follow Through Day on 11/2/23, which prompted me to buy a trading position. This was a Stage 2 base with the Stage 1 base back in May of 2023. Notice how the market correction of July-Nov 2023 did not have a dramatic effect on the stock price. It allowed it to create a base with only a 14% correction. That kept the RS high and allowed it to power out for the big run that got us where we are today. Once again it has built a relatively shallow (10%) flat base that has an official buy point of $815.32. I have drawn a dotted line in black that represents an early entry point of resistance just before $815.32. The blue box is the buy range. By CANSLIM/IBD rules, you should not pay more than 5% above the buy point or it makes you too vulnerable to a shake out if the stock dips down again. That lower pink box represents the 7-8% loss range that is a mandatory sell rule for IBD traders. That is 7% below the proper buy point and stocks will often get near that area after a breakout, thus buying 5% above the proper point will force you out. History shows that about 50% of breakouts come back to their pivot point.
Though I love the stock, this is not the best of bases. It spent a good amount of time below the 50dma and the right side does not show adequate accumulation by the professionals (no big blue bars). The is that on tall red down volume bar in the middle of the base and that is actually good. It shows a big shakeout that got rid of a lot of weak holders. They are no longer around to sell if it breaks to new highs.
A good aspect of the chart is the las 3 days. It did fall below the 50dma on Thursday’s bad market day, but rebounded nicely on Friday and us up even high today. The downside is that upside volume was not strong in those day. The upside is that it was stronger than the previous days!
Finally, this is a Stage 3 base, which means historically they have a higher failure rate. The secret is out, everyone has seen the Stage 1 and Stage 2 bases make money, so that attracts weak buys that are more likely to run when things get a little iffy. Unless the market proves it has shaken off that Thursday drop and the 8 distribution days (Naz), I will stay out.

Recent Article…
ServiceNow’s cloud-based software platform automates IT processes, integrates with other enterprise-software platforms and churns out analytics for informed decision-making. The Santa Clara, Calif., company’s launched of Pro Plus with generative AI features in Q3 “was the most successful product launch that we’ve had,” ServiceNow CFO Gina Mastantuono said in a March 4 presentation at a Morgan Stanley conference.

Mastantuono explained why ServiceNow priced Pro Plus 60% higher than the Pro version launched in 2018, factoring in increased productivity and employee salaries. “What we do is we give 90% of that value to customers and we keep 10%.”

“That value equation seems to work extremely well with customers,” she added.

KeyBanc started coverage of NOW with an overweight rating and 1,000 price target, citing confidence in its ability to monetize AI.

4 Likes

While I totally respect William O’Neill, (have his book, read it several times and follow a lot of their basic principles) my only real gripe about IBD/O’Neill is that they created some of their own venacular. It just makes it confusing sometimes.

From Investopedia:

What Is Basing?

The term basing refers to the consolidation in the price of a security. This movement in price is commonly used by technical analysts and usually comes after a downtrend before it begins a bullish phase. The resulting price pattern looks flat or slightly rounded. As such, the price shows that supply and demand are relatively equal.

This is consolidation. I know, it’s spitting hairs, but it is what it is.

Lakedog

1 Like

Why the drop in earnings for 2024?

Andy

@lakedog IBD does use the term “consolidation” when the pattern does not match one of their “standard” bases: Flat, Double-bottom, Cup, Cup with Handle. I don’t think Bill invented these names, but based on his historical research, he defined the IBD rules for what they are: minimum time, max depth. Their MarketSurge tool uses pattern recognition to annotate the charts with these patterns, which is pretty nice. If the consolidation does not match a pattern, it will just draw dotted lines to show the high of the consolidation (and sometimes the low).

@buynholdisdead I don’t know why there is an earnings drop in 2024, that data comes from FactServe and their collection of analysts predictions. It does seem odd.

1 Like

He didn’t name the patterns, those are long standing, but the different bases, his relative index etc, I can’t help but look at those as marketing ploys. “Pay me $150 a month and I’ll give you the secret patterns to make you a millionaire.” I absolutely do respect his perspective and take on the market. I recommend all should read his book to learn more. You don’t have to take it as gospel, but it’s an incredibly informative perspective. But he was a sly business person, he knew what he was building and worked to do that. He had to sell his approach to large investors and did so well.

Lakedog

1 Like