Xero shares (ASX:XRO) closed 4.11% higher at A$70.47 today, with markets testing a break above $70 after a prolonged decline that has left the cloud accounting software provider trading well below its moving averages and near multi-year lows. The rally comes following a jump in software stocks in US markets overnight, with sentiment in the beaten down sector of tech slowly shifting.
The intraday gain is notable for its size, with Xero’s share price having added 14.44% since the start of the week, off a decade low. Unsurprisingly, after a 60% pullback in the last 12 months, the technical backdrop remains cautious. Xero’s share price sits below its 50-day moving average of 72.97, which in turn remains below the 200-day average of 94.65. The 20-day exponential moving average also sits below the 50-day, at 68.91 versus 72.02, a configuration that typically signals sustained weakness.
Yet the break above A$70 could be an interesting one, assuming the move holds in upcoming sessions on solid volume. The level had in months past acted as support, only to flip to resistance as markets continued to sell down.
Volume today reached 826.500 shares (1.02x ADV), a solid clip that suggests genuine interest rather than thin-air volatility. The Commodity Channel Index reading of -80.32 points to recent downside stretch, which can support short-covering or dip-buying even when the broader trend remains under pressure.
View From The Street: XRO Price Targets
Looking to analysts for clues has proven erroneous so far in Xero, although there is always time for a change. The consensus target price of A$129.20 sits 83% above the current share price, a gap that complicates the tape. The Street’s valuation view is materially more constructive than the current price action, which can support the stock on valuation grounds and fuel bargain-hunting. The disconnect between broker targets and market price is a live debate, and today’s move may reflect investors testing whether the discount has become excessive.
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The key question is whether today’s rally marks the start of a more durable recovery or simply a pause in a longer downtrend. A sustained move above the 50-day average would be the first technical signal that momentum is shifting, while a close back below A$70 could suggest the bounce was short-lived.
First clues can be taken from the software complex in US markets later today, with names such as INTU, Adobe, and Salesforce ones that could provide a potential read.
Bull Case:
- Consensus target 83% above current price.
- CCI reading points to recent downside stretch, supporting short-covering or dip-buying.
- Solid volume today suggests genuine interest.
Bear Case:
- Price remains below 50-day average, with 50-day below 200-day, signaling sustained weakness.
- Broader de-rating of long-duration growth stocks continues to weigh on sentiment.
