Lockdown realities put spotlight on cybersecurity stock

04/01/20
  • CRWD’s surge bucked the coronavirus sell-off
  • Rally stalled around resistance level at previous high
  • Lockdowns, remote working highlights cybersecurity needs

Scouring the markets for “unusual activity” can sometimes lead you to a potential trading opportunity, even if it’s not necessarily the one you thought it would be.

Yesterday, for example, call options volume in cybersecurity tech firm CrowdStrike (CRWD) was outpacing put options volume 13:1 in early trading:

Chart 1: LiveAction scan: Highest call/put ratios, 3/31/20. 13 times more calls than puts.

Source: Power E*TRADE


This type of activity could mean an increasing number of traders are playing the long side with call options, which could be bullish. Or, if the call buying is extreme, it can sometimes mean bulls are getting a little carried away and prices may be ripe for a pullback or downturn.

Or, none of the above: In this case, traders were getting out of existing April CRWD call positions, which although not necessarily bearish (could have been someone taking profits), doesn’t fall into the bullish category, either.

A dead end?

Not quite, because there’s still been a lot of other action in CRWD, as the following price chart shows. In a strange parallel to the situation in BridgeBio Pharma (BBIO) discussed in this space yesterday, CRWD—a fellow member of the IPO class of 2019—has spent several days consolidating after a huge rally off the all-time low it made in the middle of March:

Chart 2: CrowdStrike (CRWD), 1/10/20–3/31/20. Paused near resistance.

Source (data): Power E*TRADE


The stock, which is still below the highs above $100 it made roughly three months after its June trade launch (see chart inset), jumped around 75% off its March 16 close—while the broad market was still tumbling to new lows. It then spent several days in an almost perfectly horizontal consolidation near the resistance level of its early March high.

Although last month’s market meltdown likely distracted many traders from paying attention to the quarterly numbers that were still trickling in at the end of the current earnings season, on March 19 CRWD released estimate-crushing numbers, posting positive earnings of $0.06/share when analysts had been expecting an $0.08/share loss, and exceeding revenue projections by more than 10%.1

But those earnings numbers (and speculation about them) may not have been the only thing driving the stock higher recently. As analysts have noted, as many people have had to shift to remote work options during the coronavirus lockdown, cybersecurity has gained renewed urgency.2

That said, CRWD’s recent pause near resistance—and yesterday’s intraday reversal into negative territory after being up solidly higher on the day—could have traders pondering the possibility of a give-back of some of that monster rally, even if the bulls hold sway in the long term.

Market Move Update: BridgeBio Pharma (BBIO) didn’t give back any of its recent rally yesterday.  The stock jumped nearly 9% and closed at its highest level since March 5.

Today’s numbers (all times ET): ADP Employment Report (8:15 a.m.), PMI Manufacturing Index (9:45 a.m.), ISM Manufacturing Index (10 a.m.), Construction Spending (10 a.m.), EIA Petroleum Status Report (10:30 a.m.),

Today’s earnings include: PVH (PVH), Lamb Weston (LW).

 

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1 StreetInsider. CrowdStrike Holdings Inc. (CRWD) Tops Q4 EPS by 6c, Revenues Beat; Offers Q1 & FY20 Revenue Guidance Above Consensus. 3/19/20.

2 Zack’s. Buy CrowdStrike as CRWD Stock Soars Amid Coronavirus Work Remote Push. 3/30/20.

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