History Says Buy the Dip on Palo Alto Networks Stock

The equity just moved 6% below its 2022 breakeven level

Deputy Editor
May 5, 2022 at 11:27 AM
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Palo Alto Networks Inc (NASDAQ:PANW) is down 5.3% to trade at $523.93 at last check. Following an April 20 peak of $640.90, the cybersecurity concern took a step back on the charts and recently found a floor at the $520 level -- an area that acted as a ceiling in October and November. This recent dip put Palo Alto Networks stock 6% below its year-to-date breakeven mark; however, there's reason to believe it may move higher once more, as the pullback has put it near a historically bullish trendline.

Specifically, PANW stock just came within one standard deviation of its 200-day moving average. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, comparable moves occurred five times in the last three years, with Palo Alto Networks stock seeing a positive one-month return 80% of the time, and averaging a 9.3% jump. A similar move from its current perch would put the equity back above the $572 mark. 

PANW Chart May 5

Adding to this, the equity's Relative Strength Index (RSI) of 29 sits in "oversold" territory. This typically means the stock could be due for a short-term bounce. 

Short interest has begun to unwind, down 6.8% in the last two reporting periods. The 7.61 million shares sold short still represent 7.9% of the stock's available float. At the stock's average pace of trading, it would take more than four days to buy back these bearish bets, leaving plenty of room for a short squeeze. 

Meanwhile, calls have been all the rage in the last 10 weeks. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), PANW's 50-day call/put volume ratio of 1.92 sits higher than 90% of readings from the past year, which indicates a clear preference for bullish bets of late.


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