Cramer is bullish on Splunk (SPLK). Should you be? Here’s the trade.

I want to look at Splunk ( NASDAQ:SPLK ). Jim Cramer featured this stock on Mad Money today; he’s bullish on it, he basically said people are fleeing this stock for all the wrong reasons, but the bottom line is, he thinks it should be higher, it’s still a good company. This isn’t the time frame I want to look at it in though: first we’ll go out to the weekly chart and you can see this has been a really nice uptrend of for quite a while. The stock just got ahead of itself though, look here, draw a line across the tops and you can see, intraweek reversal, volume heavy, very, very heavy volume. This is what’s known as a blow off top, basically it just blew off, buyers finally came in after all this move, the last gasp, they finally said, “Okay I’m in, I see the good news, I’m buying it.” After that, who else is left to buy?

The only buyers that are going to be remaining after a stock has made this kind of move and finally sucked in all of the lemmings, and by the way if you were one the bought right there I’m sorry, it’s everyone but you, that’s what I’m talking about; everybody bought here, the only folks that are left to buy are going to be those that are waiting for it to come down enough, they’re just not going to buy it here at 100.00, apparently, or 95.00 or 90.00 even 85.00, not enough to buy it. The stock is clearly broken now, this is a trend that is absolutely busted, there it was; this is the area that I’m most interested in, because of this, because this is where sellers live. The stock broke down so here’s what I want you to do, if you like Jim’s bullish thesis then just know that any snapback is going to have some kind of resistance, it’s going to hit some kind of selling pressure, right at this level, you’ve got to be ready for that.

If you want to hold it longer-term then this is your buying opportunity, right here, right now you can go ahead and take this, but just know that when the stock gets up here it’s going to be at resistance. Prior support once broken, particularly when it’s broken on volume is new resistance. So look at resistance right here, if the stock is not able to regain, if it’s not able to stay above the 50-day moving average, then irrespective of what the fundamentals are, this is actually a stock that can be set up for a short; I’m saying that you don’t want to short it now, the stock’s gone down too much. But you can make this trade a bounce play, and then hang on to it if it starts chewing through this resistance, or to close out your trade and actually look to set up a short, and if you do happen to short it on that strength you keep a very tight buy stop right up there. Those are couple trades for you; make them if you like them, if you don’t, that’s okay too.