 Hey folks, Bob Desmond here over at the Contrarian Trader and welcome to a follow up commentary regarding SAP stock. I did some video analysis on SAP back on the 27th of October and what we're going to do is we're going to revisit what I had to say back then and answer the question as to whether or not was I accurate A and B? Is it now time to consider purchasing the shares of SAP stock? So what we're going to do here is I'm going to do a refresher of as to why we sold off on SAP stock to begin with on an announcement made that was made back on the 26th of October. Then I'm going to talk a bit about the reaction of the analyst community, which is always a laugh. Then I'm going to play for you a brief clip of my technical analysis from October the 27th and then I'm going to give you an updated technical analysis of where we stand at the close of business on Friday and we'll talk about strategy moving forward. Is SAP a swing trade or an investment? And in the end, what will be our catalyst to send the shares up higher? So let's get to it. As a refresher, this is off of investors.com IBD on the 26th of October. The German software enterprise maker SAP slashed this year's revenue forecast and warned that coronavirus emergency would hurt business in the first half of 2021. They went on to surprise investors and analysts alike when they went all in on their cloud transition and canceled its analyst day. Furthermore, SAP also reported its September quarter revenue came in below analysts estimates. SAP stock plunged 23 spot 2% to close at 115 spot zero two per share. So that was the catalyst for the sell off poor revenues cancellation of their analyst day cutting visibility and they do not project having their cloud based strategy in full effect until 2025 folks. Now how did the analyst community respond to this announcement? It was only Oppenheimer that had come out and adjusted their price target from 172 per share to $130 per share. They maintain an outperform rating on the shares. You need to laugh. You need to laugh. Now what about the other geniuses in the analyst community? Not much. It was only Oppenheimer who had issued a buy rating on SAP stock back in March. Not a bad call. Who changed their price target. Other than that, there was no real reaction since the 26 to SAP's revenue and guidance. So think about this. Barclays initiated a buy on the 20th of July. That was right here. We're significantly below that mark now. Not a peep out of them. Back in January, Goldman issued a buy rating that was here January of 2020 and the shares immediately sold off and sold off hard. And now they have come full circle yet again. We're very close to the lows of April of 2020 and not a peep out of Goldman Sachs. Which lends the question, what do these guys do for a living? Now we're going to segue into some technical analysis of SAP stock. But before we do the analysis of SAP stock, we want to take a look at what the parent index is doing. How is it shaping up? Are we gaining strength or are we losing momentum? Because we need to take a look at the parent index because we know that 80 to 85 percent of the time, a stock in any index is going to trade in lockstep with its parent index. Unless of course they have amazing sales and revenue growth allowing them to buck the trend. And we know SAP is not one of those stocks. So let's go check that out. Now this is a chart of the S&P 500 software industry index. And as you can see by RSI and by Stokes, we have been putting in for quite a while lower highs and lower lows. We have broken down on RSI. Same deal here, stochastics lower highs. We broke down to new lower lows. So to answer the question, is the software sector in a bullish uptrend? The answer is yes. Is that uptrend stalling out? No doubt about it. And you may be saying, why are you saying that it's still an uptrend? Because RSI and Stokes are breaking down. We need to see price follow suit. Price and volume action matter most. And while yes, the probability of us breaking support here is very high given the price action of RSI and Stokes, we want to see a confirmation breakdown on price. And I think the probabilities of us breaking down are very, very good. We're not there yet. Now on a daily timeframe, RSI week, Stokes are a bit oversold, poised for a bounce. On price, you can see clear lower highs. This 35-30 spot 2-5 mark is critical support. We have already broken down below prior support levels, but this is the Pimp Mac Daddy of them all. 35-30 spot 2-5. If we break down below that mark and we close there, that is a confirmation breakdown and a new bear market will have begun on the S&P 500 software index. And the path of least resistance will have changed from higher highs to now lower highs and lower lows. So we understand that we are nearing support. Stokes are a bit oversold, so we may see a brief, brief rally on this index. Now moving on over to the chart of SAP. I want to play for you a clip of my comments from the 26th, and then we'll do our technical analysis of SAP stock. So are the shares a buy at current? Well, we know we're at historical support. The question is, do we hold? To determine that, we need to do a deeper dive, drilling down to the weekly timeframe. Now in a weekly timeframe, as we noted on a monthly look, we bounced off of historical support. I think we can overshoot further to the downside before putting together a brief rally. Now looking at the share price from a very short-term swing trade perspective, folks, we're oversold, we have RSI down below 20. We are trading down below, it's hard to see here, down below the third standard deviation Bollinger Band, here, this is a little bit better, I just changed the line colors. The lower band in white here of the Bollinger Band, this is a three standard deviation band, not a two standard deviation Bollinger Band. This is unsustainable. I believe that we are going to rally fairly soon. We may make a new daily lower low, we'll be looking for a bullish key reversal bar. All right, so this is a monthly chart, and when I last spoke about SAP, we were trading above the 113.50 mark. I warned that we'd probably see lower lows, we got those lower lows. But as you noted from that prior clip, support, which I had drawn back then on the 27th held last week at the 105 spot 17 mark, we bounced off of that level. Will that be the ultimate bottom short-term anyway for SAP shares? I don't think so. Let's roll down further. Let's go to a weekly chart. Now on a weekly timeframe, we closed out the week last week down below the third standard deviation Bollinger Band in white. RSI still very weak, Stoke still very weak, but we did bounce off a support level, but I'm not getting the all clear yet to go buying these shares. And you may be saying, you know, Bob, you're the guy out there saying, you know, RSI, not a daily chart, RSI is well down below the 20 mark. In fact, it's at 15, it's got a 15 handle on a daily timeframe. How could you not be buying these shares? Because weak stocks tend to get weaker. I could have made the same argument back here when we were trading on a daily timeframe down the three standard deviation Bollinger Band. We could have popped up higher, but we knew from experience that all we need to do was trade sideways for a day, alleviating that overbought condition and then break down, which is exactly what happened. And the exact reason why we did not go buying at that point in time, despite the fact we had Bollinger Bands oversold and we had RSI oversold. It just wasn't enough. What was I looking for? Well, I'm greedy and I'm scared. I want to buy where I know I have buyers of like mind. Where do we go to to identify where we have buyers of like mind back to the monthly chart? This is a new line of support. So at current going into the new trading week, we have two support levels. This is support level number one, one, zero, five, spot one, seven. I think we can overshoot it and ideally head down to 102 spot four nine. This would be a very, very good risk reward entry point and where may some they see just simple lines on a chart where what I see are buyers of like mind willing to step in at a logical support level to bid the shares of SAP stock up higher. If I were to buy the shares at the close on last Friday, I didn't have buyers of like mind immediately at my disposal to help bid the shares back up. And if you take a look on a daily chart and you base your decision on simply the RSI, which does have a 15 handle. That's what you call stinking thinking. You want to wait. You want to show patience. And if the trade gets away with you, so what? What I want to see here and I mentioned this on that clip earlier is I want to see a bullish key reversal bar. What might that look like? What that look like is a sell off on Monday, ideally an overshoot down to this support level to a 102 handle and then a reversal off of that 102 support level because you have buyers of like mind below bidding the shares back up and closing it back above the 105 mark. If you were to get that, that's your short term bottom and that will send alarm signals to short sellers who have become very, very complacent as a community. But the wake up call will be that bullish key reversal bar to those that are short yet understand technical analysis and they'll probably be looking to book profits and make them real because the markets will have sent them a signal that these support levels are significant. They will be defended and it's best to book profits. What else besides the technicals? We have catalyst that could send us up higher. We are at a extreme oversold levels on a daily timeframe on a weekly timeframe. We have the shares trading down below the three standard deviation Bollinger ban. We also know that we have two support levels immediately below. What else do we have our disposal that might help move the odds in our favor? Well, Trendspider has a tool and for those not familiar with Trendspider, we've been using it automated technical analysis. You don't need to be experienced to use Trendspider. If you're learning technical analysis and you're just learning how to draw trend lines, use the trend line feature to help validate or invalidate as to whether or not you're doing a good job. If you are experienced like me, I use Trendspider as a spell check for my technical analysis. So if you want to get an edge over other traders and have invaluable tools at your disposal, use that link below to get 35% off. This is in the video description area. And what tool they have versus their competitors is this. Besides the analyst feature, which I went over earlier, they have seasonality. Now seasonality in this case goes back 17 years. So we have a wealth of data at our disposal here. Now October has ended. Historically October ends up 56% of the times. We know that was not the case for last month. But what gets interesting here is that in the month of November, historically going back 17 years, November is a seasonally favorable period of time up 60% of the times. So I think that in addition to the technicals that we have seasonality going into November in our favor. Now I will caution that the month of December is a seasonally weak period of time. And it may be weaker this year because of tax laws selling ahead of the new year. So in closing, do I believe that SAP stock is worthy of a swing trade or an investment? The answer is a swing trade. Are we ready to buy it right here right now? No. It's very close. It must hit our price targets, one of two. We'd like to see a bullish reversal bar. Other catalysts in our favor. We have large numbers of institutional holders and three we have seasonality at our back with November being up 60% of the time going back 17 years. So at this stage of the game, folks, when you're trading extreme oversold stocks, we have our ducks in a row, we're ready to go. Now it's just a matter of the price coming to us and then scaling into the trade. What are our price targets? I think that price target number one, let's go to the weekly chart. Price target number one is going to be the 115 mark. If we manage to rally through that resistance level, I think that we could easily head up to 119. That would be the next stop after the 105, 106 mark on a closing basis. It's at that 119 mark where I would be scaling out of the trade and I would look for opportunities to potentially short the shares of SAP as they believe that in all probability they are going to move lower. And before all is said and done monthly chart, we will see, as you can see here where my alert is set, we will see a 90 handle on SAP. Will it break down lower from there? Well keep in mind, folks, you have the S&P software index, which is on the verge of breaking down as well. If it does break down, I predict that in all probability that SAP stock will follow suit and will probably not hold the 90 mark because we're not looking at a short term correction on the S&P software index. It's a longer term breakdown, which could last for several months. Now if you're interested in watching my technical analysis of SAP stock from October the 26th, you should see the link right in front of you. And if you want to learn more about the RSI and how I leverage it, you should also see a tutorial in front of you, which will give you a deep dive into how I use the RSI. And if you have any questions, leave a comment below and I'll talk to you soon.