Red Hat Drops 12% After Earnings, Signaling Major Top

Red Hat RHT traded 12 percent lower on Friday morning, after beating Wall Street earnings estimates but missing on guidance.

The company reported earnings per share of $0.72 and total revenue of $813 million, beating analyst estimates of $0.69 and $807 million. For next quarter, they project earnings of $0.81 and revenue of $822-$830 million, below expectations of $0.88 and $856 million.

While 12 percent may seem like a steep price to pay for weak guidance, investor expectations were high and the stock has been on a tear, more than doubling since early 2017. Subsequent downgrades by stock analysts including Raymond James, BTIG, Mizuho, and Zacks, may have added fuel to the fire.

Looking at the market cycles on the Red Hat weekly chart, we can see that while only halfway through its current minor cycle, the stock has already broken through the cycle low. This means that this is likely a major top. It also means the odds are high that we will see further downside, as it will spend plenty of time in the declining phase before the cycle concludes.

The market cycles point to important lows in August and then further declines into October.

Red Hat Stock Chart with Weekly Bars

For more on cycle analysis, check out the askSlim Market Week show every Friday on our YouTube channel.

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