Atlassian (NASDAQ:TEAM) Tries to Break Downtrend

Shares of Australian based tech company Atlassian NASDAQ: TEAM, known for its team collaboration software, have been cooling off ever since the stock set all-time highs back in July.

Industry-wide weakness through August and September as the tech sector started to look frothy and investors began to de-risk was largely responsible for the initial phase of selling. The tech-heavy Nasdaq index found itself down 4% from July highs by the end of August so it was no real surprise for a stock like TEAM to be seen catching some heat too. The former was up about 20% on the year which TEAM had easily outperformed already with an eye-watering 60% rally - made all the more impressive given TEAM’s market cap is over $25 billion.

Still though, all in, by September TEAM was down by 8% from July’s highs.

However, when Q1 ‘20 earnings were released in the middle of October, stock-specific selling took over.

Post Earnings Reaction

Even though the company’s EPS and revenue numbers beat analyst expectations, it looked like one of those cases where they didn’t beat them enough. Investors ran for the door and shares found themselves down an additional 14% in the days and back at following the release. Some degree of irrationality looked to be present as the stock’s RSI was quickly smashed to below 30, indicating it was oversold.

But having touched $107, a level not seen since early May, shares caught a strong bid and have since recovered all the post earning losses.

It could be that investors have had time to digest the finer details of the report and recognized that the fundamentals remain strong. It remains a best-in-class software provider that’s printing 36% year-on-year revenue growth.

Bank of America upgraded it from a Neutral to Buy last week, giving it a price target of $135 and highlighted the "enhanced buying opportunity" on offer thanks to recent weakness. They also noted that TEAM is better positioned than its peers to ride out any global slowdown.

It’s been a darling of the institutions too, with over 88% of the float in big-name hands - always a comforting sign for those thinking of getting involved.

Support around $107

Interestingly, that $107 mark where the stock found support was right around where it had consolidated in early summer before breaking out to new highs. While it’s still finding itself in a falling wedge where lower highs are being set, this could be an interesting one to watch if it keeps finding buyers around $107.

As the range narrows and pressure builds, given the strong fundamentals that remain, a breakout to the upside and a resumption of the upward trend isn’t too hard to imagine.

History Repeats Itself

It wouldn’t be the first time the stock has sold off hard from earnings, consolidated and then gathered momentum to move to new highs. A similar pattern of events occurred in April on the back of Q3 ‘19’s release. Shares fell over 11% even though the company beat analyst estimates for EPS and revenue figures, just like last month.

The stock had been trading right around all-time highs but opened with an aggressive gap down the day after that release. The discounted prices weren’t available for long however as buyers quickly stepped in. Fast forward to less than a month later and the stock had broken out to fresh highs.

Near Term Momentum

For those looking for similar action in November, it’s worth noting that TEAM’s MACD had a bullish crossover last week which suggests there’s positive momentum building. With US indices, including the tech-heavy Nasdaq, hitting all-time highs on Friday, shares of TEAM are definitely worth having on your watchlist.

Its RSI is at a very neutral looking 50 even though shares have rallied 14% over the past week and its fundamentals remain rock solid. If the benchmark indices continue their march higher there’s no reason TEAM shouldn’t follow them and make a run of its own towards fresh highs, just like it did in May.