PANW Rose 55% Over Six Months to a Record High. What Its Chart Says Ahead of Earnings

Let's take a look:

PANW plans to report results after the bell on Wednesday for the three months ended Oct. 31.

As I write this, the Street's consensus estimate for Palo Alto Networks calls for the firm to report $0.89 in adjusted earnings per share on roughly $2.5 billion of revenue. That would represent a sharp contraction from PANW's year-ago print of $1.56 in adjusted EPS, but about a 15% gain from fiscal Q1 2025's $2.1 billion in revenue.

All told, 35 of the 46 sell-side analysts that I know of who cover PANW have increased their earnings estimates since the quarter began, while only one analyst has revised their estimate lower. (Ten have left their forecasts unchanged.)

Now check out PANW's chart going back approximately one year and running through last Tuesday:

I'd be lying if I were to say that looking at this chart, I'm not concerned about PANW's short-term future.

Readers will see that from late 2024 into early 2025, PANW developed a double-top pattern of bearish reversal, as marked with two red boxes, a jagged red line and pink shading at the chart's left.

Technically speaking, this pattern worked like a charm, with PANW falling some 30% from a $208.39 February high to a $144.15 April low.

Then this past spring, the stock developed a rising-wedge pattern of bearish reversal, as noted in the above chart's center.

Once again, this pattern worked like a charm. PANW fell some 21% in a matter of weeks from a $210.39 July peak to a $165.21 August low.

Next, Palo Alto Networks put together yet another rising-wedge pattern of bearish reversal from August into late October, as denoted at the above chart's right.

Since then, PANW has fallen 9.3% between hitting a $223.61 all-time intraday high on Oct. 28 and closing on Monday at $202.90.

All in, this stock has repeatedly developed bearish patterns over the past year – and so far, these set-ups have preceded fairly sharp sell-offs. In fact, PANW is currently struggling with its latest bearish pattern ahead of earnings.

The stock has recently been testing its 50-day Simple Moving Average (or "SMA," marked with a blue line at $208.60) from above. That $208.60 level now represents the stock's downside pivot, and PANW closed below that on Friday and Monday.

Meanwhile, PANW's $223.61 Oct. 28 record high might be the stock's upside pivot.

Readers will also see that Palo Alto Networks' Relative Strength Index (the gray line at the chart's top) is still neutral, but appears to be weakening.

Similarly, the stock's daily Moving Average Convergence Divergence indicator (or "MACD," marked with black and gold lines and blue bars at the chart's bottom) is sending some bearish signals.

The histogram of the 9-day Exponential Moving Average (or "EMA," denoted by blue bars) is below the zero-bound and has been for most of the past six weeks.

In addition, the 12-day EMA (the black line) moved below the 26-day EMA (the gold line) in early November, and both of those lines have moved towards zero from above.

As I write this, the options market is pricing in a roughly 6.5% move in PANW's share price in response to the company's upcoming earnings. With Palo Alto Networks trading at about $203 recently, a 6.5% move would put the shares in a roughly $190-$216 range.

Some option traders who are neither bullish nor bearish on PANW might look to take advantage of any greater-than-expected post-earnings move by the stock by employing a so-called "long strangle."

That consists of simultaneously buying a call with a higher strike price and a put with a lower strike price, with both having the same expiration date.

Conversely, some options traders who expect PANW won't move that much at all around this week's earnings might use what's called a "short strangle" to attempt to take in some premium.

A short strangle consists of simultaneously selling a call with a higher strike price and a put with a lower one – again, with both contracts having the same expiration date.

Here's an example of a short strangle:

-- Selling one PANW $195 put with a Nov. 21 expiration date (i.e., after the earnings release). This would cost about $3.70 at recent prices.

-- Selling one Nov. 21 PANW $215 call for about $3.70.

Net credit: $7.40

Should the shares not trade outside of the $195-$215 range at expiration, the options would expire worthless and the trader would keep the $7.40 net credit above.

But on the downside, an options trader faces two risks at expiration with this trade.

First, the person could end up owning 100 PANW shares at a $187.60 net basis at a time when the shares are trading below $195.

Conversely, the trader risks being short 100 PANW shares (with theoretically unlimited risk) at a $222.40 net basis when the shares are trading above $215.