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Alan Farley

Nasdaq-100 momentum play DocuSign Inc. (DOCU) has fallen from grace in recent weeks, dropping more than 100 points below the Sept. 2 all-time high at 290.23. The steep downturn has relinquished 100% of the strong advance that started in early August, dumping the stock through the 50-day moving average for the first time since the first quarter’s pandemic swoon. Heavy selling volume has accompanied the decline, signaling a wholesale exodus by the momentum crowd.

DocuSign Rally May Have Exceeded Value

The stock took off for the heavens in March when Wall Street and market players realized the company’s digital signature technology would be essential during a pandemic in which businesses shut down physical offices and shifted into remote work and virtual meeting spaces. Rapid growth since that time has fueled an historic uptrend that some analysts now believe has exceeded the company’s long-term financial outlook.

Deutsche Bank analyst Taylor McGinnis expressed this cautious sentiment in a Sept. 4 note, downgrading DocuSign to ‘Hold’ from ‘Buy’ while maintaining a $225 price target. He acknowledged strong Q2 earnings and upbeat fiscal year 2021 guidance but expressed concern the stock had risen an astronomical 180% and had reached an unsustainable 26 times 2021 revenue. As a result, he believes the stock is now fully-valued.


Wall Street And Technical Outlook

Wall Street consensus hasn’t changed much since that bearish call, maintaining a ‘Moderate Buy’ rating based upon 9 ‘Buy’ and 7 ‘Hold’ recommendations. No analysts are recommending that shareholders sell positions and move to the sidelines at this time. Price targets currently range from a low of $210 to a street-high $300 while DocuSign closed out Friday’s session more than $15 below the low target. This humble placement suggests that analysts believe market players have been wrong in selling the stock.

Technically speaking, it looks like the initial selling wave of this correction is close to running its course, setting the stage for a strong bounce that will run into heavy resistance above 220. That price zone could offer a final opportunity for nervous shareholders to move to the sidelines because the highly-bearish volume pattern predicts the uptick will fail and potentially complete a head and shoulders topping pattern, with a downside target near 140.

For a look at all of today’s economic events, check out our economic calendar.

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