This software AI play is breaking down and in for more pain, according to the charts

Into the third week of January, shares of ServiceNow (NOW) appeared to be in a fairly stable and consistent uptrend phase. But after underwhelming 2025 guidance from company management last month, NOW gapped lower to short-term support. This week, we've observed further price deterioration as investors seem hesitant to take bullish bets on this cloud solutions provider. Let's break down the daily chart with a series of technical approaches to determine a likely scenario through Q1. Before we can talk about downside projections at all, we need to clarify the concerning configuration leading into the Q4 earnings announcement in late January. The daily chart of NOW features a bearish momentum divergence from December 2024 through January 2025, with higher price action matched with downward-sloping RSI. In a healthy bull market phase, upswings are usually complemented by strong momentum, indicating an influx of buying power pushing the price to new highs. In this case, we could see momentum trending lower as NOW approached the $1200 level. So while the chart can not necessarily predict the outcome of an earnings call, we can certainly observe bearish technical conditions as a warning sign of waning investor sentiment going into the announcement. After the earnings release on January 29th, NOW gapped down to the $1000 level, lining up well with the most recent swing low from mid-January. When a stock like NOW gaps lower, I like to focus on the price action immediately after the price gap. Do we see signs that optimistic buyers are coming in, thrilled to own NOW at a deep discount? In this case, we observed sideways price action over the following week, demonstrating a lack of buying power at this discounted stock price. Over the last couple trading sessions, we're now seeing a drop below the gap level, suggesting that additional selling pressure is forcing NOW below a well-established support level. Applying a Fibonacci retracement to the chart, we can see that the downside gap took the price down to the 38.2% retracement level based on the May 2024 to January 2025 uptrend phase. The last time we saw a major pullback for NOW, back in the first half of 2024, the price ended up finding eventual support at the 61.8% retracement level. A similar structure for NOW in early 2025 would imply a downside objective at the 61.8% retracement level around $852. This would represent about a 29% loss from the January high, and would mean another 13% drop below current price levels. What can volume tell us about the likelihood of this downtrend phase playing out as expected? The Chaikin Money Flow indicator considers the daily volume reading but weights the individual volume prints by where the daily close sits within the day's trading range. We can see the CMF has rotated from positive to negative this week, suggesting a transition from an accumulation phase to a distribution phase for this large cap technology stock. If we can see an upside reversal in the Chaikin Money Flow representing a new accumulation phase, and if NOW can power back above "big round number" resistance around $1000, then we would consider a further recovery to be much more likely. But given the price performance after last month's downside gap, it appears that more pain may be in store for ServiceNow. -David Keller, CMT marketmisbehavior.com DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.