Cloudflare: Keep Your Feet on the Ground or Chase the Breakout?

The stock of Cloudflare (NET) is up sharply Friday morning after the company that acts like a giant VPN gave upbeat guidance. Let’s check on the charts to see how far this surge can carry.

In the daily bar chart of NET, below, we can see that the shares made a low in June and were moving higher ahead of Friday’s gap higher. NET is trading above the bottoming 50-day moving average line. The slope of the 200-day line is negative and it intersects up around $105.

The On-Balance-Volume (OBV) line shows some uneven progress from the middle of June. The Moving Average Convergence Divergence (MACD) oscillator is edging above the zero line for an outright buy signal.

 

In the weekly Japanese candlestick chart of NET, below, we can see some positive clues. It looks like the $45 area is now a zone of support.

 

The weekly OBV line shows some slight improvement in July after a long decline. The MACD oscillator has crossed to the upside for a cover shorts buy signal.

 

 

In this daily Point and Figure chart of NET, below, we can see a price target in the $82 area.

 

 

In this weekly Point and Figure chart of NET, below, we can see a target in the $79 area.

 

 

Bottom-line strategy: NET is gapping higher Friday, but weakness in the broader market averages could drag NET lower in the days ahead. Even though the Point and Figure charts suggest bigger gains I would not recommend purchase of NET shares. This is not the time to chase upside breakouts.

 

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