NET's 40-day moving average has helped push the security higher four times before
The shares of website-security company Cloudflare Inc (NYSE:NET) are down 3.4% at $73.41 this afternoon, though year-over-year the equity still sports a staggering 326.5% lead. And while a Dec. 28 bear gap resulted in the 20-day moving average emerging as as an area of resistance, a historically bullish trendline lower on the charts could help NET topple this ceiling in the coming weeks.
Specifically, Cloudflare stock just pulled back to its 40-day moving average, after several months above this key trendline. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, four similar signals have occurred in the past three years. In 75% of those cases, NET enjoyed positive returns one month later, averaging a 13.5% gain. A similar move from its current perch would put the stock just below $84, which is well on its way to reclaiming a Dec. 22 all-time high of 88.77.
Shorts are already hitting the exits, though there is plenty of pessimism left to be unwound, which could push the security higher. Short interest fell 12.9% over the last two reporting periods, yet the 10.81 million shares sold short still make up 5.5% of the stock's available float.
Now seems like a prime time to speculate on the security's next move with options. Cloudflare stock's Schaeffer's Volatility Index (SVI) of 62% is in the 12th percentile of its annual range, meaning options players are pricing in low volatility expectations at the moment -- a boon for premium buyers.