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Technology solutions company Citrix Systems (NASDAQ: CTXS) has been a notable underperformer in the technology space. The stock is lower by about 8% year to date, while the Nasdaq is up by nearly 12%. CTXS remains fairly well situated technically from a longer-term point of view, but near term it has reached a support level where, if it fails, it will likely make a quick move lower.
To be fair, CTXS is not the only stock in the business software services group that has struggled so far in 2013. Cognizant Technology Solutions (NASDAQ: CTSH) is also having a tough year. CTSH is lower by roughly 16% year to date, and from what the charts are telling me, there is plenty of downside yet to come.
Since the 2009 bottom, CTXS' gyrations have mostly followed those of the broader market, represented on the chart below by the SPDR S&P 500 (NYSE: SPY). Since the stock recorded an important lower high in March however, it significantly diverged from SPY.
Going back to the bear market lows, like most stocks and other asset classes, CTXS frolicked higher after a late 2008/early 2009 bottom, which was enforced by government-sponsored stimulus programs. Its roughly 325% rally came to an abrupt end in June 2011 around the $88 area -- a level the stock has not been able to overcome since. It was followed by a nasty 43% decline over the course of about two and a half months.
From there, CTXS again powered higher, and in late April 2012, revisited the June 2011 highs near $88, marking a notable double-top. After continued choppy trading until September 2012, the stock finally started on a slippery slope and bottomed out along with the rest of the U.S. stock market in November 2012.
This next leg higher that ended in March marks the third important point on the chart below (denoted by the blue circles) as it recorded an important lower high versus the double-top. The ensuing sell-off finally pushed the stock below its 200-week simple moving average last week. CTXS has not traded below this moving average since early summer 2009, at which point the stock's rally had just begun to pick up steam.
Last week's selling also caused CTXS to drop marginally below an uptrend line that dates back to early 2010. This is now the fourth test of that trendline, and as I so often point out, the more any level gets tested, the more significant its ultimate break.
Also note that by January, and again in March of this year (the lower high), the stock had retraced 61.8%, an important Fibonacci level, of the entire sell-off from April 2012 to November 2012. On Friday June 14, CTXS also closed below lateral support near $61.50, all of which now looks to have paved the way for the stock to move toward the $56 area, and possibly all the way down to $50.
The stock's underperformance may help it accelerate its downward move if and when the broader market participates. Regardless of the broader market's intentions, CTXS is a weak stock that appears to have more downside ahead.
Recommended Trade Setup:
-- Sell CTXS short at $61.50 or lower-- Set stop-loss at $63.20-- Set initial price target at $56 for a potential 9% gain in 4-8 weeks-- Set secondary price target at $50 for a potential 19% gain in 4-8 weeks
As a die-hard value investor, I struggled with its valuation in the past, but now I'm ready to pull the trigger.
Following a breakdown, there are simply too many bearish technicals on its chart to ignore.
As bearish trends take hold, this pick has become an overpriced company in a struggling sector.