Mapping the Market: Oracle shares may be in for a rally

Oracle shares have fallen more than 50% at their extremes since hitting this year’s ​high in June, but they may be in for at least a ​temporary bounce, technical analysis indicates.

Click here for a detailed technical ‌analysis ​chart. Technical analysts use charts of price history to develop ideas about what a stock could do next. When a company's shares are falling, they look for something called support, which is a price level that acts as a floor.

Old lows ‌and highs are a common source of support. When market participants see that it is difficult to keep a stock below a certain price, they view that level as support. If the shares trade below it temporarily but pop back up quickly, it reinforces the strength of that support. Often times, support can be found in a range of ‌prices rather than one specific level. In Oracle shares, the area between $115-$119 has become what is known as structural support. It is where repeated lows, highs and closing levels ‌are located and has stopped the market from falling and rising for several years.

It halted Oracle’s slide in July, after which the stock rallied almost 50% until early September, according to data supplied by LSEG. It also put a stop the fall in the stock last week, which could lead traders to expect another bounce. Once support appears to be holding, technical analysts look to gauges of momentum to ⁠see if ​they support the case for a rise. One ⁠of those is called the Relative Strength Index, or RSI, which examines the pace and magnitude of a move to measure momentum. One important aspect of the RSI is that it is expected to ⁠hit new lows whenever the stock price does. If not, this is called divergence and signals a possible rise, which is what happened when Oracle shares hit last week's low.

Another measure ​of momentum is Moving Average Convergence Divergence, or MACD. Both MACD and RSI indicate that Oracle shares could bounce higher from here. If Oracle pulls away from ⁠the $115-$119 support zone, likely targets will include the $130-$131 area and $148-$153 zone. Those levels are what technical analysts call resistance, which is the opposite of support and works as a ceiling for the price. A break above ⁠the $170-$175 ​zone could be a sign the longer-term down trend is ending.

However, if Oracle shares revert to losses and drop below the support in the $115-$119 area in a sustainable manner — like closing a week beneath there — then traders would probably expect further losses. At that point, they might consider the $90-$94 area and then $60-$65 zone as potential ⁠targets. Oracle did not immediately respond to an email requesting comment.

What the chart shows: (Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column ‌does not constitute investment advice ‌or trading recommendations.)

(Christopher Romano is a Reuters market analyst. The views expressed are his own. ​Editing by Burton Frierson and Nick Zieminski)