Cloudflare (NET) is set to report their quarterly numbers on Thursday. In our January 21 review of the global network company we wrote that "I am sure the fundamental analyst who recommended the purchase of NET has their reasons but the charts and technical indicators are not on the same page. Avoid the long side of NET until a solid base has formed."
Let's check the charts and indicators again.
In this daily bar chart of NET, below, we can see that prices continued to sink into the end of January. Prices have traded up so far in February. NET is approaching the underside of the 50-day and 200-day moving average lines. In an uptrend these moving averages can sometimes act as support as traders look to buy against these mathematical trendlines. In a downtrend these moving averages can act as resistance as some math-driven traders may look to sell the first move back up to the underside of these lines. NET is not there yet but it will be interesting to watch how prices act.
The On-Balance-Volume (OBV) line has improved from the end of January. The 12-day price momentum study shows a higher low from December to January as this indicator tells us that the pace of the decline slowed. The late January low has not been retested but that kind of move does not always happen.
In this weekly Japanese candlestick chart of NET, below, we can see a bottom reversal pattern with a doji at the January nadir. Prices have improved but candle charts do not give you price targets. We need to look at other tools for that.
The weekly volume bars do not show me a big increase in January's turnover and the weekly OBV line shows a decline from November.
The Moving Average Convergence Divergence (MACD) oscillator is below the zero line but it has been narrowing.
In this daily Point and Figure chart of NET, below, we can see a potential upside price target in the $154 area. Potential chart resistance starts in the upper $120s.
In this weekly Point and Figure chart of NET, below, we see that the software has generated a very bearish price target of only $25.
Bottom line strategy: NET was part of a group of tech companies whose stock prices soared last year and then came back down to earth in less time than the advance. I have no special knowledge of what NET will report after the close of trading Thursday, but I am still not ready to recommend the long side. Prices could bounce further to the upside or pullback for a retest of the January low. Sometimes the charts and indicators are cloudy. Stand aside for now.
