DocuSign Bulls Need to See Breakout Over This Level

-- Despite better-than-expected earnings and solid guidance, DocuSign stock remains below a key level --

By Bret Kenwell, TheStreet.com

DocuSign (DOCU)  shares are up nicely but are off from the post-earnings-report high. At last check the shares of the document-security-software provider were up about 11%; at one point they were up 14.5%.

The move comes after the stock rallied more than 5% on Thursday in anticipation of the company's quarterly results.

It's hard to believe how poorly the stock has performed. While it was a pandemic stock that would get crushed in the growth-stock bear market, DocuSign is now trading well below its covid-19 low from March 2020.

In the most recent quarter, DocuSign beat earnings and revenue estimates, while providing third-quarter and full-year guidance that topped analysts' expectations.

DocuSign, then, is trading below its covid low even as the business is doing better.

In the first and second quarters of its fiscal 2020 (in calendar year 2019), the company generated adjusted earnings of 8 cents a share on revenue of $449.6 million.

In the first two quarters of this year, it generated adjusted earnings of 82 cents a share on revenue of $1.21 billion, up about 10-fold and nearly three-fold, respectively.

Free cash flow in the respective periods climbed to $280.1 million from $42.3 million.

Yet the shares remain 3.4% below the covid-low -- even with today's rally -- and 80% below its all-time high.

The market is a forward-looking mechanism, but the losses seem extreme given the improvements in the business. Let's look at the chart.

Trading DocuSign Stock on Earnings

Weekly chart of DocuSign stock

Chart courtesy of TrendSpider.com

Shares of DocuSign are struggling with a major level on the charts near $65 to $67. In this area, we find the covid-19 low from March 2020 as well as the major resistance mark from 2018.

In that sense we had a big breakout before the covid correction, then the stock held this zone as support on the pullback in March 2020. It is a key area for traders to take notice of.

This level was breached earlier this year, and while DocuSign stock reclaimed it in August, it failed to stay above it. The shares went on to make new lows in September.

Further, the 10-week and 21-week moving averages aren't doing bulls any favor.

The bulls could justify a long position if DocuSign stock can get above $67, but with a wide risk level by using the 52-week low near $53 as their stop.

Yes, that's about 20% from the $67 level and represents a huge range to work against. Conservative bulls may simply say "long above $67, flat below it" and that's fine, too.

Because as long as the shares are below the 10-week moving average and $67, the low technically remains vulnerable.

But if the stock moves back above $67, bulls could see a significant rally - particularly if growth stocks and equities in general fetch a bid.

From TheStreet.com