Fastly Has Broken a Key Band of Support

Odds favor further declines.

In his first "Executive Decision" segment of Mad Money Thursday night, Jim Cramer spoke with Joshua Bixby, CEO of Fastly (FSLY) , the content delivery network that's seen its shares nearly cut in half in recent weeks as revenues from its largest client, TikTok, declined.

Bixby said that Fastly saw a lot of good things in the quarter, including their second highest number of new enterprise customers and a strong retention rate for existing customers. He explained that Fastly is moving aggressively into edge computing to make transactions faster and cybersecurity, to make those transactions more secure than ever. 

Cramer said Fastly is difficult to value in the current environment, but there's no doubt the company is creating a lot of value with its network.

We last reviewed the FSLY charts on October 15 and wrote that, "Long-time readers of Kamich's Korner may remember me talking about a technique from a founder and trader at Commodity Corp.,  Amos Hostetter. Hostetter used to say that if prices moved more than 50% through a support zone they were likely to move all the way through. So what is the support zone of FSLY? If we consider it roughly the $70-$100 area from July to September as support then weakness below $85 would not be good. Traders need to watch and worry about weakness below $85 as it could precipitate further declines."  

Fastly did break below $85 and the decline continued.

Now what? Let's check out the charts again.

In the updated daily bar chart of FSLY, below, we can see that prices have broken entirely through the support zone. FSLY is trading below the 50-day moving average line and its slope is negative. The still rising 200-day moving average line is not all that far away now.

The On-Balance-Volume (OBV) line has declined sharply this month telling us that sellers of FSLY have been more aggressive. The Moving Average Convergence Divergence (MACD) oscillator is bearish is it is below the zero line. 

 

In the limited weekly bar chart of FSLY, below, we can see that the shares topped out with a huge outside week and lower close. The 40-week moving average line is starting to crest and the weekly OBV line and MACD oscillator are bearish. 

 

 

In this updated daily Point and Figure chart of FSLY, below, a price target in the $29 area is being projected. 

 

 

Bottom-line strategy: FSLY could bounce at any point, but the three charts above are bearish and the odds, in my opinion, favor further declines. With a downside price target of only $29 from the Point and Figure chart (above) I am in no rush to recommend even scale-down buying. Avoid for now.

 

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