 Okay, folks, welcome to Stock Watch Today. This is Bob Desmond and what we're gonna do on this video is that we're gonna go over the pre-market activity for this day, October the 27th, 2020, the pre-market activity of the overall stock market using the pre-market futures. Then we're gonna segue over to into our focus stock of the day, which is SAP, which had announced earnings on the 26th and the shares gapped down on earnings. And what we're gonna focus on in particular with SAP is the quality or the lack thereof of their earnings, where they stand relative to their peers in their industry group. Then to help answer the question of as to whether or not SAP is a buy, sell, or hold, we're gonna do some technical analysis doing a deep dive from a higher level view, monthly chart to weekly chart to daily chart to identify whether or not this is a stock that we'd want to buy now, or should we avoid? And then we'll leave off with some catalyst, which I believe might send the shares up higher. The question is, what timeframe? Will it be a short-term swing trade, or will it be a longer-term investment? So please take a moment, smash that like button, subscribe to the channel, and let's get to the pre-market activity. We'll begin with our focus stock, which is SAP. And SAP, you can see, has rallied off the lows of the close yesterday this morning. We closed out the day yesterday at 1.15 spot zero two per share. We were up over a dollar this morning, yet we're beginning to see signs of a fade. More to come on technical analysis later on in this commentary. So stick around, please. Before we talk about SAP, let's do a pulse check of the overall market, the US dollar. Up on the morning, it was strong yesterday. We're seeing higher lows, higher highs. No breakout though yet. Gold, gold is back down below the ever-critical 1900 mark. It looks weak. I went over this with members last night on market wrap that I'm concerned about gold. I'm concerned about the miners, especially with the dollar holding support and appearing as though it's gaining steam. For those not familiar, the dollar and gold generally trade inversely of one another. The S&P 500, flat on the session, a very bearish day yesterday. We go into this day with no deal out of Washington and the lack of a deal yesterday certainly walloped the overall market with the transports, particularly taking it on the chin along with energy. Copper, which has been a leader of late is now beginning to weaken up here, breaking down below support. Dr. Copper is a barometer for global growth and right now it's under pressure. I wouldn't say this in a downtrend by any stretch, but it's certainly under pressure. The Russell 2000, it was up earlier, now it's faded. No great shock here. Down nearly a quarter of percentage point, lower highs. And yesterday, actually I should say here, on the 21st, we began breaking down to lower lows. So small caps under a lot of pressure of late. The Nasdaq 100, they are up. After having broken down here on the 26th, they rallied back some, but now they're being stalled out at resistance. In short folks, this market needs stimulus. Let's go over to our focus stock SAP. I would be very careful of this market at current SAP on the 26th announced earnings in the pre-market and had its worst trading day in roughly 12 years with market cap wiped out of 35 billion in Euro terms, 41 billion in US dollar terms. The approximate cause of the performance of the shares in the third quarter was directly as a result of the lockdowns over in Europe, which are being reimplemented in many areas, in particular in Italy and in France. SAP is a German software maker focusing in on enterprise software, human resources, software, et cetera. Now, the articles that I've read with regard to SAP, and I'm certainly no expert on their business model or the inner workings of the company, I do have a higher level view of the sector and it's archaic, their business model. And I think this paragraph summarizes here fairly well, while customers pay considerable sums up front for SAP's on-premise software. That's old computing. Most payments for cloud subscriptions come down the line and have little doubt that this is the line that traders looked at and said, wow, we got to get out of this. As a result, the company is abandoning its medium-term profitability targets and warned that it will likely take longer than expected to recover from the pandemic. So their model is not working, despite the fact that you've had a lockdown due to the virus. And here's what's kind of concerning about the announcement SAP now expects to almost triple its cloud revenue. God, that's annoying, this pop-up. To triple its revenues over 22 billion euros by 2025. What that statement tells me is that they are way behind the curve to move towards cloud computing and net net, have little doubt that that's the crux, that's the proximate cause of their current weakness is that they are behind the curve. And that transition over to cloud computing is gonna impact their margins negatively by four to five percentage points. And they're expecting double-digit profitability after their transition in 2025. So a lot of work to be done here at this company, not being familiar with the management. We will take a look at their return on equity, which gives me a glimpse of the quality of their management. We'll be able to determine as to whether or not this is a management team that can execute on strategy. Let's get to some statistics on the company. This is off of investors.com, Investors Business Daily. It has a composite rating of 63, which puts it just above the middle of the pack. But as you drill down to the group leadership rank in the enterprise management software, they are ranked last in the group. So this is not an innovator. They are well behind the curve as that article implied. So this is somewhat of a validation. Now to the quality of management, their annual return on equity is outstanding. I mean, a number over 12, 15 is very good. 20 is really, really good. Management does own a chunk of the shares, just shy of 10%. We'd like to see that number creep up as these shares decline in value and they transition over and into a cloud-based business model. So I would keep an eye on management ownership. There's some room to move up here, considering the fact that they are expecting double-digit growth by 2025. If I were an insider, I saw us executing on our business plan, you know what? I'm buying the shares. That would be a forward-looking indicator. So keep an eye on this. Now let's segue over and into the technical analysis to identify where we've been to determine where we might be going, both long-term and short-term. So we're gonna begin with a monthly chart of SAP using TrendSpider. TrendSpider is our software which provides us automated technical analysis. It is my spell check for technical analysis. I use to validate as to whether or not my manual trend lines are accurate and it's great for beginners who are learning technical analysis. They're manually drawing their support and resistance levels. However, they want somebody to tap them on the shoulder to validate as to whether or not they are doing the right type of work. And all you need to do, draw your trend lines as I'm gonna do here. We're gonna talk about this event here. The market sent us a signal. But before I do that, let's finish off here. Okay, so these lines here, both the vertical upper band of the rising up trend channel, lower band of the rising up trend channel, horizontal support level at 141.44 and support level at 118.25 are manually drawn. Then I take my mouse, click a button, automated trend lines. And you can see that I'm pretty much on cue. TrendSpider picked up on one support level that I did not, I was focusing on a primary support level. This is an extrapolated out support level from prior highs. And that's the value of having TrendSpider. It's a really good tool. And you can see that on a monthly timeframe. And this is what I want to talk about. Let's clean this up a bit. We had broken out back in July. Very strong breakout became a bit overbought relative to what started standard deviation from Bollinger Band. And then in September, we failed after retesting the breakout point to hold support. We closed down below and back into this trading range. And this is what you call a breakout point failure or a bull trap. And what you should learn from that, and this is what I teach members, is that when you see this expect at a bare minimum, a retracement back down to the lower band of support. And many times it fails. And sure enough, that's what happened yesterday when the shares crashed hitting support last seen back in May of 2020 at a low of 113 spot 33 before bouncing to recapture support at the 115 mark. And earlier folks, I said this is 118 support. It's actually 113 spot 25, my apologies for the confusion. 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 know it 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. I'm gonna go to a chart in a moment that will illustrate why I believe the rally is going to occur fairly soon. However, given the prospects of the company longer term, meaning a transition to a cloud business model, I do not believe that the rally is sustainable. And that ultimately we're gonna be looking at a share price where I would be interested in it at or around, I know loans are not gonna wanna hear this. I would be looking for support at $90.79 to view it as a potential intermediate to a longer term investment. Because these shares are under clear distribution, their admitted timeframe for execution on their strategy and return to double digit growth is not until 2025. And we'll have many market corrections between now and then providing us an opportunity to get in down below $100 per share. And ultimately this may not even hold in this market environment. I mean, Europe is back under lockdowns yet again. 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 ban. This is a little bit better. I just changed the line colors. The lower ban in white here of the Bollinger ban, this is a three standard deviation, not a two standard deviation Bollinger ban. 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 and quite possibly entering the trade to take advantage of a move up higher. But I believe ultimately that that rally will fail and we will roll over and proceed to make lower lows after putting in lower highs. Now what are the catalysts to send the shares up higher? Well, in the short term, it's the technicals. The, again, the downtrend at current is unsustainable. So if you're looking to short this stock, don't do it because those that are leaning into the short side or those shorts that have not covered their positions as of yet, they're gonna get a rude awakening fairly soon. As they begin to get squeezed out of their positions because technicians like me are looking at this saying, okay, these guys need to get punished because they didn't book profits. That being said though, I would not stick around long. I would book our profits fairly quickly and then move to the sidelines and then wait. We've already set up our alert. It's set for 30 days and we'll wait to see whether or not it comes down to our price point. But to invest in the stock, we need a discount. What else could help these shares move up higher? Admittedly, I'd have to say not much. I mean, it's yielding only 1.5%. So to think that anyone's gonna wanna take on the risk of owning the shares that are in a downtrend because remember, weak stocks tend to get weaker only to get paid 1.5%, it doesn't make sense. Now, what else could push the shares up higher? I think that taking a look at the short interest, we could put together a roughly four day short covering rally and I arrive at that number based upon the number of shares on average traded, which is 699,000. You divide that into the number of shares held short, which is roughly 2.5 million. You arrive at about 3.5 to four days worth of short covering. Obviously, this is not going to help keep the stock held aloft, so I would not use it as a rationale to invest in the shares for the long term. Now, if you're gonna buy it for the dividend, well, the earnings growth is fairly good. Now, it's gonna take it on the chin with the transition to cloud a bit, but these are respectable year over year EPS growth numbers. So the dividend should be safe. So to summarize, folks, short term, I am becoming very bullish on SAP because I do believe we're going to get an extreme oversold countertrend rally. Do I believe that that rally is sustainable? No, I do believe that we're gonna put in a lower high. Ultimately, we're going to roll over and we are going to break down to new lower lows. So short term, an interesting swing trade, which I'll be sending out a trade alert on to members, longer term, until the shares come to us, I would sell the countertrend rally and take that cash, move it to the sideline, and look for better endeavors. Folks, I did some commentary on Twilio earnings last night. You should see that link to the video appearing right now and take a look at my analysis of Snapchat when they were at extreme overbought levels and I called for a correction in the share price where we booked over a 4.5% profit to the short side yesterday. So in closing, please, if I can ask you to smash that like button, subscribe, thanks for watching.