The American web-infrastructure and website-security company headquartered in San Francisco, California, that provides content-delivery-network services, DDoS mitigation, Internet security, and distributed domain-name-server services, Cloudflare Inc. (NYSE: NET) seems to be gearing up for a surge as per its latest charts.
Bullish Indications
#1 Ascending triangle pattern Breakout: The daily chart shows that the stock has currently broken out of an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in purple color. A breakout from an ascending triangle pattern typically indicates bullishness. The base of the triangle generally acts as a good support level after the breakout.
Daily Chart – NET
#2 Trading above MA: The price is currently above both the short-term moving average of 50-day SMA. This implies a possible bullish bias for the stock.
#3 MACD above Signal Line: The daily chart shows that the MACD line (blue color) has crossed above the signal line (orange color).
This is a possible bullish setup.
#4 Bullish ADX: The ADX line has started to move up from below –DI and +DI lines.
The +DI line is also currently above –DI line.
This indicates possible bullishness.
#5 Bullish Stoch: The %K line is above the %D line of the stochastic, indicating possible bullishness.
#6 Symmetrical Triangle Pattern Breakout: The weekly chart shows that the stock has currently broken out of a Symmetrical Triangle pattern. This is marked on the daily chart as pink dotted lines. A symmetrical triangle is a continuation pattern and is characterized by two converging trendlines connecting a series of sequential peaks and troughs. A breakout from this pattern is a possible bullish sign.
Weekly Chart – NET
#7 Bullish RSI: The RSI is currently above 50 and moving up in the weekly chart, indicating possible bullishness.
#8 Bullish Stoch: The weekly chart also shows that the %K line of the stochastic has crossed above the %D line. This is also a possible bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for NET if the stock trades above yesterday’s close. This translates to a price of around $20.35.
TP: Our target prices are $25 and $30 in the next 3-6 months.
SL: To limit risk, place a stop loss at $17.80. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 23% to 47% in the next 3-6 months.
For a risk of $2.55, the target rewards are $4.65 and $9.65. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 4x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the ascending triangle as well as symmetrical triangle pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in its sector.
Happy Trading!
Tara
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