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VMWare Inc. (VWM) - Anticipating Support at $170; Pulling Back Despite Earnings Beat

VMWare Inc. $VMW reported earnings after the 5/30 session closed. On all accounts, the numbers beat estimates. Here is a summary from thestreet.com:

VMware Shares Drop Despite Earnings That Top Forecasts

...

The Palo Alto, Calif.-based company posted fiscal first-quarter net income of $505 million, or $1.21 a share, down from $942 million, or $2.29 a share, in the comparable year-earlier period. The latest first quarter includes an unexpected gain of $132 million from VMware's investment in Pivotal Software, the company said.

Revenue came in at $2.26 billion vs. $2.01 billion a year earlier.

On a non-GAAP basis, the company earned $553 million, or $1.32 a share, on revenue of $2.27 billion. Analysts polled by FactSet were expecting earnings of $1.28 a share and revenue of $2.24 billion.

VMware, a Dell Technologies portfolio company, said license revenue for the quarter was $869 million. Operating cash flows came to $1.27 billion, while free cash flows for the quarter were $1.2 billion.

In terms of guidance, VMware is maintaining its fiscal 2020 forecast, with expected revenue of $10.03 billion. Analysts are expecting revenue of $10.02 billion with earnings of $6.53 a share.

VMware also said that its board has authorized up to $1.5 billion in stock repurchases through fiscal 2021.


VMW has been bullish in 2019 and has been resilient until the last couple of weeks leading up to the earnings report. 

VMW Daily Chart

(click to enlarge)

Double Top:
- On the daily chart we can see that price failed to clear the $205 level twice in May. 
- Ahead of the earnings report, price was already cracking the neckline and completing the price top.
- After the earnings report, we saw a sharp drop to $177 area. Price rebounded a little during the Friday 5/31 session but still closed below $177.
- VMW is likely a victim of its own success, rallying into record highs after consolidating for almost 10 months before breaking above the $165-$170 resistance. 
Support:
- Now, as price pulls back, we can look at this $165-$170 area as support.
- Note that the 200-day simple moving average is also here.
- The thing is, the upside will likely be limited for a while. We saw an earnings beat where the guidance was affirmed. If this was not enough a catalyst for bullish continuation, I think the market is going to be in consolidation mode with VMW.
- The next level of support would likely be around $150, a psychological level and the middle of the previous consolidation range.
- On the weekly chart, we can also see a rising trendline support that would meet price if VMW fell to $150. 
- I have dry powder waiting at $170 and $155. 

VMW Weekly Chart

(click to enlarge)

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