Software Stock Could Have Room to Run

NOW has pulled back to a historically friendly trendline

Deputy Editor
Mar 30, 2020 at 2:28 PM
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ServiceNow, Inc. (NYSE:NOW) has been in rally-mode of late, enjoying some tailwinds from a slew of recent bull notes, including an upgrade from Mizuho to "buy" from neutral" last Thursday. Today, NOW is up 4.9% to trade at $287.55. What's more, the equity last week pulled back to a historically bullish trendline, which could help push the stock even higher, if history is any indicator.

ServiceNow has been volatile with the rest of the broader market since it his its all-time peak of $362.95 on Feb. 19. The shares have taken an 11.1% haircut since then, drifting all the way down to within one standard deviation of their 320-day moving average. NOW has spent an extended period above the trendline, defined for this study as having traded north of the moving average 60% of the time in the past two months and in eight of the last 10 trading days. 

Daily Stock Chart NOW

According to Schaeffer's Senior Quantitative Analyst Rocky White, the equity has seen two similar pullbacks within the past three years, which has resulted in an average 21-day gain of 23.9%, with both returns positive. At NOW's current perch, a similar bounce of that magnitude would have the stock trading just below $260, a chip shot from that Feb. 19 record high. 

Puts have increased in popularity in the options pits, and an unwinding of these bearish bets could also fuel more tailwinds. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio sits at 0.83. So while calls have outpaced puts on an absolute basis, the rate of put buying relative to call buying has been accelerated.


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