My previous article for Palo Alto Networks (PANW) also had some charts for CyberArk Security (CYBR). These two cyber-security firms are what you would call the “Best of Breed” in my opinion.

But who am I? I am just some obscure technical analysis writer living in the suburbs of Chicago Illinois. My opinion won’t change a market. Even known short seller Andrew Left is bullish on Palo Alto Networks (PANW).

Palo Alto Networks (PANW)

Let’s start off with a longer-term chart for Palo Alto Networks (PANW) to help see the longer-term trend. I will use a 5 year monthly candlestick chart for this purpose.

The Japanese candlestick book states that the support area for a Hammer candlestick pattern is the bottom of the real body for the candlestick. By definition then, it would suggest selling shares on a break below the bottom of it. However that would have meant selling out near the low in May 2016 only to see PANW’s share price rise again starting in July 2016.

This is one trading strategy of a few where I disagree with the candlestick books. After you look at the below chart, you will start to understand why.

Identifying a Hammer Candlestick Pattern on a Monthly Chart for Palo Alto Networks (PANW)

On the Hammer candlestick pattern webpage I talk about a secondary support area for the candlestick pattern. That secondary support area was very important during PANW’s consolidation over the next several months.

After I drew a few trendlines, placed a Fibonacci Extension Tool on the chart (to measure downside risk areas for PANW’s share price) and where I also identified the secondary support area for the Hammer candlestick pattern, this is what the chart now looks like.[s2If !current_user_can(access_s2member_level1)]…..

If you want to continue reading, you must sign in. If you are not a Trendy Stock Charts member, consider subscribing today. In the rest of this article I discuss upside price targets for PANW’s share price, downside support areas, trade set-ups and trading the current trend in progress. If this interests you, why aren’t you over on the subscribe page already checking out the subscription plans?[/s2If][s2If current_user_can(access_s2member_level1)]

Analyzing Palo Alto Networks Monthly Candlestick Chart for Support & Resistance Areas

The secondary support area for the Hammer is the bottom of its lower shadow. This is a very important support area in my opinion and usually presents a great opportunity to go long on any pullbacks into the secondary support area range. This is especially true when the Hammer candlestick develops on extremely heavy volume like Palo Alto Networks (PANW) did.

The minimum trade set-up at this point from the above chart looks like a run back to at least the overhead resistance area. That area is around the $171 level. Any pullback to the supporting trendline or close to it could be an opportunity to make a scale-in purchase.

But the above chart also looks like a huge, and I mean huge, Bull Flag chart pattern.

A Possible Bull Flag Chart Pattern Developing on this 5 Year Monthly Candlestick Chart for Palo Alto Networks (PANW)

The breakout for PANW could be huge, which we will discuss a little lower and calculate using the Fibonacci Extension Tool.

PANW – Moving Averages

One trade set-up I have mentioned several times lately is the Golden Cross 200 Day moving average set-up. It goes like this. After the development of a Golden Cross, wait for the next pullback either to or below the 200 Day moving average. The pullback to or below the 200 Day moving average after the development of a Golden Cross is the opportunity to make a scale-in purchase and go long the stock.

Analyzing Palo Alto Networks (PANW) From a Moving AVerge Perspective

While PANW did just develop a Death Cross, look at the 50 Day moving average rounding out. It will not be long with PANW’s share price on the rise again to Create another Golden Cross pattern. The next pullback could be the last opportunity to go long on PANW’s share price at lower levels before a substantial breakout occurs. Let’s go define substantial.

Palo Alto Networks (PANW)

This is a 1 year daily candlestick chart where I’ve zoomed in to look at PANW’s most recent uptrend and pullback. The black lines are for the Fibonacci Retracement Tool while the blue lines are for the Fibonacci Extension Tool. The Retracement Tool was used to measure the pullback while the Extension Tool was used to calculate upside potential. I mean substantial potential, that’s what I was supposed to define.

Placing a Fibonacci Extension & Retracement Tool on the Chart for Palo Alto Networks (PANW)

With upside price targets at the $174 and $206 levels as identified by the blue Fibonacci Extension Tool, I would say that is some “substantial” upside potential. Let’s analyze this closer and look for scale-in purchase areas to go long and get in on this uptrend.

PANW – Scale-In

The first strategy one could consider when using a 1/3 scale-in strategy is to immediately make that 1/3 purchase when they want to get in on an uptrend. That 1/3 purchase could always be used to trade around or even sold based on subsequent activity. But it gets you in the game on a stock that you have been watching.

The next 1/3 purchase is made after a pullback and re-test of a support area. Look for secondary indicators to confirm the re-test.

And then the final 1/3 purchase is made hopefully on the way up for the share price. But it is also reserved in case you mis-read the re-test of the support area. In other words, if the stock’s share price breaks below the support area where you made the second 1/3 purchase and proceeds below that price for a short time. That is when the final 1/3 purchase is made.

This scale-in strategy can always be tweaked a little depending upon the stock, the pattern, etc. But hopefully it is something to help those that are not familiar with using and implementing a scale-in strategy.

Let’s review this 30 day hourly chart for some possible entry points.

Analyzing Palo Alto Networks (PANW) Short-Term to Make an Initial Scale-In Purchase to Go Long

The $133 or the $130 area could easily be used as an initial scale-in entry area. That initial scale-in purchase could be used as a lot of trading shares or the beginning purchase of a position to hold over the next year, depending upon your trading style and intent.

Do keep in mind some possible weakness I have been anticipating in the market in general around the inauguration date. This could help to get some lower prices for PANW.

Palo Alto Networks (PANW) – Summary

The risk to reward ratio for Palo Alto Networks at this price level looks very attractive. With any sort of pullback and PANW’s risk to reward ratio will only improve. And with a lot of tension in the marketplace about hacking right now, could it be time for cyber-securities resurgence? The timing seems pretty good.

I have been writing about some possible general market weakness around the POTUS inauguration date. If that does happen, it could present a great opportunity for any investors wanting to go long PANW. Any re-test of the $123 area is another opportunity for a scale-in purchase. The last scale-in purchase should be made after a rebound from the $123 area on above average buying volume for a couple of days or on the break below that price level, whichever is the case.

But making an initial scale-in entry on this stock in the low $130 range is a good point to start building a long position in the name again. I had mentioned to stay away last time before it reported earnings, but this time I am recommending to buy the next pullback. Long and strong PANW. This trade set-up is mom approved as she may be participating on any pullback below the $130 level as well….good luck trading.