Citrix Systems Stock Could Gain 30% in the Third Quarter

Nasdaq 100 component Citrix Systems, Inc. (CTXS) took off in a powerful March rally when Wall Street analysts realized that video conferencing could replace business travel as the most prevalent form of remote communications, even after the pandemic runs its course. Citrix stock posted impressive gains into May's all-time high at $155.10 and eased into a trading range that's now carved a bullish "flag on a flagpole" pattern, forecasting much higher prices.

Rival Zoom Video Communications, Inc. (ZM) has gotten most of the bullish press during the advance and has posted stronger second quarter upside. However, Citrix software is far more mature, with higher adaption in the business community. Citrix stock is also less volatile, even though both issues carry similar outstanding floats, and Citrix isn't plagued by Zoom security issues that have exposed user data to unwelcome eyes.

Analyst consensus is surprisingly mixed on Citrix, with six "Buy," seven "Hold," and one "Sell" rating. The stock is now trading just below the median $154 price target and about $50 below the Street-high $200 target. Investors have chosen to ignore Wall Street skittishness, lifting accumulation readings to all-time highs even though price has failed to post a new high for two months. This bodes well for strong gains in coming months.

Citrix Systems Long-Term Chart (1995 – 2020)

The company came public at a split-adjusted $2.05 in December 1995 and entered an immediate uptrend that topped out at $7.47 one year later. The stock then crashed, posting an all-time low at $1.28 before recouping 100% of those losses and resuming its strong uptrend. The rally finally topped out at $96.58 in March 2000, marking the highest high for the next 18 years, ahead of a bear market decline that gave up an astonishing 96% into the 2002 low at $3.71.

A two-legged recovery wave recouped about one-third of the downside into the 2006 high at $35.93 and eased into a trading range, ahead of a failed 2007 breakout attempt. Citrix stock held up relatively well during the 2008 economic collapse, dropping to a four-year low, setting the stage for strong price action into the new decade. This buying impulse stalled nearly 30 points under the 2000 peak in 2011, establishing a resistance level that took another five years to overcome.

A 2016 breakout completed the round trip into the 2000 high in 2017, yielding a larger-scale breakout that stalled near $117 in the summer of 2018. A decline into year end tested new support successfully, underpinning a strong 2019 uptick that topped out in January 2020. The stock returned to that level in March after a 30-point downdraft and broke out once again, posting an all-time high in May.

Citrix Systems Short-Term Chart (2018 – 2020)

The on-balance volume (OBV) accumulation-distribution indicator topped out ahead of price in 2018 and entered a shallow distribution phase that ended at an 18-month low in August 2019. Subsequent buying power reached resistance in November, yielding a March 2020 breakout that has continued to post new highs, even though the rally stalled two months ago. This establishes a bullish divergence, predicting that price will soon follow.

The trading range since March doesn't fit the perfect definition of a bullish pennant pattern. but these are strange times, and the mishmash of price bars should act according to the traditional mechanics – i.e., acting as the halfway point between two vertical rally impulses. If so, the next wave has the potential to reach into the $190 to $200 price zone, marking a high-percentage return from currently traded levels.

The Bottom Line

Citrix stock has worked off overbought technical readings after a dramatic first quarter breakout and could post strong gains in the third quarter.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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