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Citrix Systems, Inc. (CTXS) is one of the smallest and weakest Nasdaq 100 components, slumping near an 18-month low, but relative strength readings have finally come off deep lows and now favor a multi-month recovery wave that rewards bottom fishers and the value crowd. Just pick your trade entry levels wisely because the healing process could take time and generate plenty of two-sided price action.
The company has failed to benefit from its membership in the relatively strong cloud computing sector since the stock posted an all-time high at $117 in 2018 and is currently trading in the double digits, nearly 20% below that peak. The latest round of trouble started in July, when Citrix missed second quarter profit expectations and lowered third quarter and fiscal year 2019 guidance, marking the second reduction so far this year.
Even so, the stock has received no new downgrades this quarter, while institutional investors have held tightly to their large positions. Relatively weak Wall Street coverage could be helpful in this instance, allowing the company to rework the business plan without a lot of media noise. Even so, this is a value play, in which buying pressure and higher prices often precede improved fundamentals.
CTXS Long-Term Chart (1995 – 2019)
The company came public at a split-adjusted $2.05 in December 1995 and entered an immediate uptrend that stalled above $7.00 in 1996. It cleared that resistance level in 1997 after a steep decline to an all-time low, entering a healthy trend advance that accelerated into a parabolic rally at the height of the internet bubble in 2000. The uptrend flamed out at $96.58 a few months later, marking a high that wasn’t tested for the next 18 years.
The stock collapsed in two selling waves when the bubble burst, finding support less than two points above the IPO opening print in 2002. The subsequent recovery wave posted decent gains during the mid-decade bull market, stalling below the .382 Fibonacci sell-off retracement level in the mid-$30s in 2006. A 2007 breakout attempt failed, setting the stage for a 50% haircut through the 2008 economic collapse.
The higher low posted at that time underpinned a strong bounce that stalled within 30 points of the 2000 high in 2013. It finally cleared the 2013 peak after the 2016 presidential election, entering a healthy uptrend that completed a 100% retracement into the multi-decade high in early 2018. A breakout into mid-year posted an all-time high at $116.83 in July, giving way to a channeled decline that failed the breakout in May 2019.
The monthly stochastics oscillator posted the most extreme overbought reading since 2011 in June 2018 and crossed into a vicious sell cycle that stretched into the most extreme oversold reading since the last bear market in May 2019. It crossed into a new buy cycle in August, predicting relative strength that should persist into 2020 while setting the stage for a bounce that could test channel resistance now aligned with the psychological $100 level.
CTXS Short-Term Chart (2016 – 2019)
The on-balance volume (OBV) accumulation-distribution indicator tested the 2011 high in 2018 and entered a persistent but shallow distribution wave that accelerated in July 2019. OBV has held high in the multi-year range, indicating good institutional support, while the reversal off the July low may signal a selling climax. Both elements, when taken together with rising relative strength, raise the odds that the correction has finally come to an end.
The sell-off reversed in August after hitting the .382 Fibonacci retracement of the two-year uptrend and has now reached failed breakout resistance at the 2000 high (red line). The unfilled gap above that level looks like a logical target because it’s aligned perfectly with channel resistance and the 200-day exponential moving average (EMA) at $100. In turn, this price structure indicates two logical trade strategies: a) wait for a breakout, or b) wait for a pullback and a higher low on the 60-minute pattern.
The Bottom Line
Citirx Systems stock may have ended a tough year-long correction and should now offer outsized returns to bottom fishers and value hunters.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.