Mixed signals at resistance level

Perspective always matters in the markets—not the psychological kind, although that helps, but the ability to understand short-term price events in a larger context.

As of Wednesday, JFrog (FROG) had rallied roughly 53% off its April low, and more than 20% in just the four days since the software company released earnings last Thursday. The surge pushed the stock to its highest level since April 2024, just slightly above its February intraday high:

Many technicians would likely look at this chart and wonder whether the stock was potentially forming a “double top”—that is, matching a previous significant high before retreating. That sentiment couldn’t be considered illogical, given the stock sold off sharply the last time prices reached this level. Perhaps traders and investors would have a similar motivation to sell.

Of course, “significant high” is a relative concept. A monthly chart shows FROG’s recent peaks are relatively minor in the context of the stock’s multi-year price history, below the February 2024 highs and far removed from the late-2020 record highs above $90:

Depending on a trader’s perspective, that could suggest the stock has much more potential upside, or that the resistance it faces in the near term may be more significant than it initially appeared to be. (Note: On Wednesday the stock was trading a little above Morgan Stanley & Co.’s $42 price target.¹)

Or both. That a stock could turn lower because of short-term resistance doesn’t preclude the possibility of longer-term gains. In this case, another interesting development was FROG’s high call-put ratio. In early trading, nearly 434 calls had traded for every put:

Just as traders sometimes view unusually high put-call ratios as contrarian indicators—i.e., extreme bearish sentiment that may signal at least a temporary low in the stock—the same could be said, in reverse, of high call-put ratios. In other words, the fact that traders were much more aggressive in calls than puts could be seen as reinforcing the idea of a potential short-term high in stock as it tested a conspicuous resistance level.

Perhaps. In this case, the FROG’s big call trades consisted of 1,600 contracts in the June $47.50 calls and 2,200 contracts in the September $55 calls. That both strikes were out of the money (above the current stock price) and both trades appeared to represent new positions (rather than the liquidation of existing ones) suggests the traders who bought these options may have had a bullish outlook despite the extent of FROG’s recent rally. But that doesn’t discount the reality that there were sellers on the other side of these trades, who may have held the opposite outlook.

Today’s numbers include (all times ET): weekly jobless claims (8:30 a.m.), Producer Price Index (8:30 a.m.), retail sales (8:30 a.m.), Philadelphia Fed Manufacturing Index (8:30 a.m.), Empire State Manufacturing Index (8:30 a.m.), Jerome Powell speech (8:40 a.m.), industrial production and capacity utilization (9:15 a.m.), business inventories (10 a.m.), Housing Market Index (10:00 a.m.), EIA Natural Gas Report (10:30 a.m.).

Today’s earnings include: Alibaba (BABA), Dillard's (DDS), Deere & Co. (DE), Walmart (WMT), Applied Materials (AMAT), Copart (CPRT), Doximity (DOCS).

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