Software has been an industry that has shown some signs of repair after a prolonged downtrend. Oracle (ORCL), one of the most well-known companies in that space, has been quite the laggard over the past year.
From early February to mid-April, ORCL quietly crafted a double bottom bullish reversal pattern, giving its first sign of life. Since then, price has been in a constructive uptrend and momentum has shifted into a bullish regime.
This accumulation phase has transformed into a larger formation – a cup and handle that price broke through in the previous trading session. Many traders may look at this chart and be eager to enter into a long position on the breakout until they realize what lies ahead.
Just above the beautiful cup and handle break lies a critical confluence of resistance – where the Anchored VWAP (AVWAP) from all-time highs meets the 200-day moving average (DMA). This occurs precisely at the gap from mid-December, where a heavy amount of supply could exist.
Another piece of evidence that could set a wary tone would be the bearish momentum divergence in the RSI. Typically, bearish divergences resolve in either false/early breakouts or support retests, but of course a divergence is never a signal until confirmed by price.
Now what if price proves us wrong and can climb above this hefty ceiling to provide us with confirmation? A clean break above this resistance around $207 could provide a favorable risk/reward opportunity towards a measured objective of $268.
But given our evidence, some consolidation around these levels could be more likely before ORCL could kickstart a run to the upside.
*Not a recommendation.
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