Hi everyone. Today we’re going to be looking at a cybersecurity company:
Cloudflare, Inc. (NYSE: NET)
NET has been trading in a series of higher highs and higher lows since IPO. Following the 2021 high, NET has fallen back into its IPO support trendline (in purple).
NET’s move higher from its IPO support trendline was led by a trend markup. However, the stock since broke below its trend (in dark green) and has since been supported by its secondary trendline (in light green). However, given that these are shorter-term trends, they can break provided we do not lose the “master” trend on NET (in purple).
We can see that the key resistance now is the 116-122.13 area, which was strong resistance in 2022, and also a strong resistance in February this year after earnings.
NET is currently basing at the 87.17 prior resistance level and just flipped it into support as of Friday’s close, with volume finally coming back into the stock. This is pivotal for the next leg higher. Moving forward, I am expecting NET to push back towards the 116-122.13 over the next few months. In the longer-term, I am expecting NET to push back towards ATHs, similar to its peers (Crowdstrike, Palo Alto Networks etc.).
Another thing to note about NET is that the fundamental case is also improving - one of the reasons why investors have been hesitant to buy NET is because of their net loss position on a GAAP basis. Well, the losses are narrowing. Annual revenue continues to grow at a steady CAGR of 46%, while operating margins have expanded since 2021. As the company works towards GAAP profitability, and with cybersecurity more relevant than ever in a period of geopolitical uncertainty, that could also be a fundamental catalyst for a move higher in the long-term.
But, I digress - back to my technical analysis. If NET loses this 87.17 level, then we could see a retracement back to the secondary support trendline, where support should be found once more at 83.14 (also prior resistance). If we lose that trendline, more likely than not, we will head back towards the IPO support trendline for a full reset. That would not be an ideal short-term outcome, but still bullish provided we hold that trend.
I like the stock.
Upside Target: New ATHs
Invalidation: Breakdown below IPO Support Trendline (in purple, currently at the 64.25-66.04 bullish island gap)
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$Cloudflare, Inc.(NET)$ $Palo Alto Networks(PANW)$ $CrowdStrike Holdings, Inc.(CRWD)$ $Zscaler Inc.(ZS)$ $SentinelOne, Inc(S)$
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