Workday: Falling Through The Floor (Technical Analysis) (NASDAQ:WDAY)

Workday, Inc. (NASDAQ:WDAY) shares appear to be in major trouble after the developer of payroll and human resources software lowered guidance for subscription revenues as macro trends for global corporates weigh on the company’s performance outlook going forward.

During the first-quarter period, Workday reported revenues of $1.99 billion (surpassing consensus estimates of $1.97 billion) while revenues from subscriptions posted at $1.82 billion (indicating growth rates of 18.8% for the period. Unfortunately, these positives failed to extend much further, as the company now anticipates declines in subscription revenue (at $1.9 billion) for the current quarterly period (which is roughly in line with the market’s prior estimates for the current period).

However, Workday also anticipates declines in full-year figures for subscription revenues (outlining a potential $7.70-7.73 billion range) and the guidance midpoint here ultimately falls below the company’s prior range forecasts ($7.73-7.78) billion and below the $7.76 billion figure that was previously recorded in consensus estimates. On balance, these figures have had a clearly negative effect on what seems to be an incredibly vulnerable stock – and we will outline chart pattern histories which make these assertions more apparent for investors using the charts that follow.

Initially, we can see that WDAY was in a clearly defined downtrend on the shorter-term charts, and this tells us that the broader market’s hopes for a positive surprise were limited even before the actual earnings release was made public. Unfortunately, those initial fears were ultimately realized, and WDAY share prices quickly dropped to levels approaching $220 after the quarterly performances were made public. As this occurred, the Bollinger Bands on the 4-hour chart history expanded broadly – and this effectively suggests that future expectations for trading ranges in this stock could become more volatile going forward.

If the bearish arguments ended there, we might not feel the need to describe this stock as “falling through the floor” – however, longer-term price histories suggest that these recent declines just might be an early precursor to the possible selling pressure that could unfold from here. Specifically, we will draw the reader’s attention to the weekly charts, which show the latest uptrend price channel failure that we have identified for this stock. If we view price action from the October 2022 lows of $128.72 and extend this uptrend to the February 2024 highs of $311.28, we can see that an extremely well-defined uptrend channel is established. In many cases, this type of price action would be considered to be extremely encouraging – and strong evidence to start considering long positions in the stock. However, we can see that share prices are unable to hold this structure for very long (and we will see that these types of vulnerable behaviors have occurred in the past when we look at the chart histories that follow).

When looking at previous price action on the WDAY weekly charts, we can see several interesting developments. Perhaps most obvious is the repetitive inability that this stock has exhibited in terms of willingness to maintain a proper uptrend channel. In addition to this, we can see that large portions of the market have been drawn back in at the lows, only to find the stock ready to fail once again – at relatively predictable price levels. If we are looking at the stock price rally which began in early 2020, we can see that prices ultimately failed during the eventual recovery event (culminating in November 2021) – and this failure occurred at a price point which would have been expected to work as an area of support during the initial uptrend. In “textbook” terms, this type of behavior is typically referred to as a support-turned-resistance failure and it suggests that similar activity could happen again in the future. Unfortunately, this activity is seeming to become a “pattern of behavior” due to the fact that we have seen this same type of failure on more than one occasion. In our view, this type of repeated bearish behavior (and the clear inability to hold a sustainable uptrend channel) would be enough to start selling the stock on rallies.

As always, we will conclude our analysis with the broadest timeframes because this allows us to determine where the majority of the market’s momentum actually rests. When we pull-out to the monthly WDAY charts, we can see that there is a clear line in the sand” which can be used to determine the bullish/bearish stance on this stock. When we are dealing with such long timeframes (and such a large number of support and resistance levels), this is not a level that can be defined in exact terms. Given the chart example above, we are going to define the $210.50 zone as our pivot point. For us, what this ultimately means is that a break of $210.50 will probably force prices through the $200 level (which will not be good enough to act as psychological support) and will work as another indication of failure for the stock. All of this should work as a major red flag – but if you are a bull on this stock, you can try to “buck the trend” and establish contrarian buy positions near $215 and bank on a reversal in market sentiment. Given all of this analysis, we are not recommending this outlook because this stock has shown no prior history of establishing itself as a sustainable bullish option. In our view, investors can short this stock right now (in anticipation of prior uptrend violation behaviors) or wait for more favorable shorting levels near the April 2024 lows of $241.14 for your short positions.