Update on Oracle 9/11/13

Quick Summary: Watch and Wait for a Better Price

Oracle is one of the premier companies of the new economy. Unless you are a tech expert that works with multinational or very large domestic companies, a government agency that has a need for their products or have a degree in computer sciences you probably like me don’t fully understand Oracle or their products. Databases, servers from Sun Microsystem and software for businesses sums up there enterprise.

Oracle makes lots of money and is competitive with only SAP and a few other companies. The never ending thirst for data by corporations and governments seems like it puts Oracle in a sweet spot of some kind.

Technically Oracle’s Point and Figure chart is on a sell signal. Oracle peaked at 36 near the beginning of the year and has sold off after forming a double top on the Renko chart early this year. (see below).

(click to enlarge)Oracle Point and Figure Daily

(click to enlarge)Oracle Renko Daily

The stock has recently changed to a buy signal on the daily Renko chart. The monthly and weekly P&F charts are still both on sell signals. Therefore entering here is not without risk. Ideally all the long term signals, Renko, Kagi, P&F, and Three Line Break charts should reverse to a buy on the daily, weekly and monthly charts to certify that the stock has resumed its uptrend and will take out its old high. Currently Oracle is giving mixed signals. Therefore caution is called for. The stock yields a meager 1.5 percent. That could mean the stock is ultimately going to be cut in half to yield 3 percent or that Wall Street insiders see more growth in the database and cloud related software Oracle sells and that Oracle will be growth stock evaluations for some time to come.

If it is cut to 15.50 the stock would yield 3 percent and you could sell covered calls to increase your yield. Not bad. But if your entry price is 36 you will have to live long and prosper to recover your money should growth stagnate or should Wall Street decide that Oracle does not have much growth left.

So for the time being Oracle should just be watched. It has multiple sell signals and the entire market may be headed for a correction. For years Oracle bounced between 22 (2007) and 14.x (2008-9). It then appeared to break out in 2011 and zoomed up to the mid thirties which has marked the top of the trading range for the period 2011-13.

If and when Oracle approaches 24 to 26 selling the 2015 or 16 puts at 22 to 26 levels would be a reasonable trade with a high probability of success. That appears to be the bottom of the new trading range. Market turmoil should drive Oracle down to the low twenties eventually. Of course if the pattern breaks down and Oracle tumbles to the teens then the trade is going to be one that results in a loss. If Oracle holds to the new bottom then with any good news it should recover and the trade will make a nice profit. Or it is possible that the current bull market pushes Oracle higher now in which case this trade won’t work.

A good options trade would be to sell the $20 2015 put for $4. Currently it is priced at less than $1. Therefore the stock would have to fall 12 points or so or there would need to be a flash crash to get that price. With the war drums sounding, don’t believe it can’t happen.

If you have a little money to invest in Oracle this strategy is very conservative and really the stock may never see $20 again but if it does your put position would give you the stock at 16 where it would be yielding 3 percent. Otherwise you would just keep the cash which is not a bad alternative.

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