Short Trade Idea
Enter your short position between $151.15 (the intra-day low of its recent correction) and $154.48 (Friday’s intra-day high).
Market Index Analysis
- ServiceNow (NOW) is a member of the S&P 100 and the S&P 500.
- Both indices drifted to fresh all-time highs amid low bullish trading volumes.
- The Bull Bear Power Indicator of the S&P 500 shows a negative divergence and does not support the uptrend.
Market Sentiment Analysis
Equity markets closed marginally lower on Friday after the S&P 500 set a fresh intra-day all-time high, and thin trading volumes are likely to extend until next Monday. Wednesday will see the release of the December ADP employment report and the minutes from December’s FOMC meeting, during which markets will assess the likelihood of a January interest rate cut, which has only a slim chance at present. NVIDIA’s quiet $20 billion licensing deal with specialized chipmaker Groq, which focuses on AI inference, may reignite concerns about circular financing and quieting competitors. The debate over an AI bubble should continue for years to come, but revenue shortfalls are a bigger issue than current valuations.
ServiceNow Fundamental Analysis
ServiceNow is a cloud computing software company. It offers the creation and management of automated business workflows. NOW has an active acquisition strategy and is a core player in the AI sector.
So, why am I bearish on NOW despite its apparent growth potential?
While I like the aggressive acquisition approach and revenue-generating business model of this AI play, I believe the good news is already priced into the stock, and I see no catalysts ahead. Valuations remain excessive even after the sharp correction, profit margins are shrinking, and competition is beginning to acquire a larger market share. I dismiss the 5:1 stock split as a desperate attempt to engage retail traders in an NVIDIA-like move.
ServiceNow Fundamental Analysis Snapshot
The price-to-earnings (P/E) ratio of 93.27 makes NOW an expensive stock. By comparison, the P/E ratio for the S&P 500 is 29.47.
The average analyst price target for NOW is $226.57. It suggests excellent upside potential, but magnified downside risks dominate.
ServiceNow Technical Analysis
Today’s NOW Signal
ServiceNow Price Chart
- The NOW D1 chart shows price action inside a bearish price channel.
- It also shows price action between its descending 0.0% and 38.2% Fibonacci Retracement Fan levels.
- The Bull Bear Power Indicator is bearish with a descending trendline.
- The average bearish trading volumes are higher than the average bullish trading volumes.
- NOW decreased as the S&P 500 advanced, a significant bearish trading signal.
My Call on ServiceNow
I am taking a short position in NOW between $151.15 and $154.48. Excessive valuations despite its recent correction, shrinking profit margins, and the 5:1 stock split caused my bearish flip.
- NOW Entry Level: Between $151.15 and $154.48
- NOW Take Profit: Between $128.95 and $135.73
- NOW Stop Loss: Between $161.93 and $166.14
- Risk/Reward Ratio: 2.06
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