Oracle Stock Drops as $10B Deal With Musk's xAI Falls Through

Oracle shares experienced a notable drop of 3% on Tuesday, a direct consequence of the collapse of talks with Elon Musk's xAI regarding a heralded $10 billion server deal. The breakdown in negotiations prompted a reevaluation of Oracle's stock performance, revealing a bearish engulfing pattern on its price chart. This pattern, characterized by a smaller bullish candle succeeded by a larger bearish one, signals a potential reversal in the stock's upward momentum.

The shift in sentiment comes after a period of bullish activity for Oracle, buoyed by its earnings report on June 12, which led to a significant price gap. Nonetheless, the optimism may be waning, as indicated by the technical analysis which shows a divergence in the relative strength index (RSI) despite the stock hitting a higher high last week. This divergence suggests that the uptrend could be exhausting.

Further analysis, extrapolating from recent price patterns between December 2023 and March highs, and applying it from the April swing low, hints at a potential price target of around $150 for Oracle shares. This target sits just shy of 3% above Oracle's all-time high of $145.79 recorded on July 5, hinting at the stock's bullish potential before the recent turn of events.

As Oracle's stock potentially retraces further in the wake of the collapsed deal, investors and traders alike should monitor several key support levels for possible buying opportunities or further declines. An immediate level of interest is $134, corresponding with the low of the recent earnings gap. Should the stock break below this level, the next critical zone to watch would be around $127.50. This level not only ties together multiple swing highs from the past year but also aligns with the 50-day moving average, suggesting it could act as a robust support level. A breach below this could expose Oracle to further downside, with the $117 mark standing as the next significant support level, underpinned by a convergence of peaks, troughs, and the 200-day moving average.

The abrupt end to negotiations with xAI has cast Oracle into a period of uncertainty. Musk's decision to have xAI develop its system internally for faster completion adds another layer of dynamics to Oracle's outlook. While the failed deal certainly introduces near-term volatility for Oracle's stock, the outlined support levels will be crucial for investors watching the company's response and its strategic moves ahead. This analysis underscores the importance of technical analysis in navigating the sometimes-unpredictable fluctuations in the stock market, especially in the wake of significant corporate developments.