Arista Networks: Buy on Signs of Weakness (Technical Analysis) (NYSE:ANET)

Every day we look for stocks to buy in times of weakness and Arista Networks (New York Stock Exchange: ANET) tops the list of selections in our Stocks In Demand or SID system. You can see ANET at the top of the list of Three actions that our SID program selected for us to analyze today. Our previous article was in a long-term buy signal after a strong sell-off, but here we present a short-term buy signal on weakness, targeting a retest of the former high resistance.

ANET is at the top of the list because it has the highest SID score shown in the SID column. The score is color coded green to indicate that it is a buy signal. Our proprietary SID score is our most important buy signal and uses both fundamental and technical factors.

You can see two of Fundamental buy signals in the report below. Our computer calculates a 12-month return of 15%. This fundamental buy signal is shown in the Implied Return column and is color coded green because we believe this type of return is a buy signal.

Another fundamental buy signal is shown in the fund column and is color coded green. This is an overview of the fundamentals that institutions take into account and are convinced enough to buy the stock. Naturally, we want to do our own due diligence on any stock selected by our SID computer system. We do our due diligence by consulting with SA analysts and SA Quant ratings.

Here is our Buy on Weakness report showing the buy on weakness signals in the time, time and confirmation columns, Cfrm. The time signal is early and the Cfrm signal is late.

Notice two important technical signals in the above report for ANET. On the 20-day bar chart, you can see red supply bars. These are changing to demand. Second, notice the stop and reversal signal, or SAR, in the SAR column. This signal tells us when sell signals are changing to buy signals. You can see three buy signals, or B, for Tuesday, T, Wednesday, W, and Thursday R, in the SAR columns. The rest of our technical signals are shown in the chart below. Before we move on to the chart, let’s do our due diligence on SA’s analysts and Quant’s ratings.

SA Quant ratings are strong for ANET in Growth, Profitability, Momentum, and Reviews, but a weak rating for Valuation, which is typical for growth stocks. SA Quant’s overall rating is a Hold. Similarly, SA’s analyst consensus rating is a Hold. However, the last three SA analyst ratings are better with a Strong Buy, a Buy, and just a Hold. Our due diligence review using SA has not changed our conclusion on ANET to buy this bounce back from near-term weakness. The daily chart, shown below, is a short-term chart, as opposed to the longer-term weekly chart used in our last article on ANET.

Here is the daily chart that analyzes the price movement of ANET for the coming week. This chart is long-term for intraday traders, but short-term for investors:

At the top of the chart above, you can see the dramatic improvement in money flow, which went from being in the red to now being in the green. This positive upward movement in money flow reflects the upward movement in price. The Chaikin Money Flow, CMF, makes it easy to see the positive demand that is driving the price higher.

Below the CMF is the MACD signal which is showing improvement and trying to trigger the buy signal. This happens when the black line breaks above the red line.

Below is the price chart, where you can see these positive technical signals that are causing the price to rise and try to complete this bullish move by reaching the previous high. A breakout would be a very positive signal.

Just below the price is the most important signal for mutual funds trying to outperform the index. As you can see, this signal has stabilized, meaning that ANET is only a market performer recently and not an outperformer over the past few days. As long as it performs as well as the market, portfolio managers will not worry. However, if the long-term trend changes direction to the downside, with it underperforming the index, then they will underweight it.

Below is the full Stochastic signal that triggers the vertical blue line buy signal we have drawn to compare with the other signals, especially MACD. You can see that the down line has reversed earlier, not reaching oversold. This is positive if it continues to rise, which we expect. Also, you can see that the CMF indicator is a leading and early indicator, as the red starts to improve and the direction changes to upward.

Finally, at the bottom is the last of the technical signals, which shows a drop in supply. Based on the other signals, we expect demand to increase, crossing supply and pushing the price higher. However, both demand and supply are very weak, and you can see the green and red ADX lines merging instead of demand increasing strongly.

Conclusion

Our most important SID buy signal is in effect for ANET and the sellers who are pushing the price down have failed to flip that buy signal. This tells us that the sellers were wrong and that they should buy on weakness. Our positive technical and fundamental signals are confirmed by SA analysts and quantitative signals. Therefore, we are confident that next week the price of ANET will continue to reach its previous high shown on the chart. Of course, we have to keep an eye on the market (SPY), which we write about every day for our subscribers. If the market goes down in September and October, as we expect, then everything will go down, especially overvalued stocks like ANET.