Stock security blanket

05/18/21
  • Cybersecurity stocks have mostly underperformed this year after a huge 2020
  • Some leading names have recently tested YTD lows
  • Checking in on the NDX pullback

The Colonial Pipeline hack that caused East Coast gas prices to skyrocket may have had nervous investors hopping online to see if they had the company in their portfolios (they didn’t—it’s a private company), but there’s been another side effect of this ransomware episode: renewed focus on cybersecurity.

That means more attention on cybersecurity stocks, many of which enjoyed big 2020 rallies as the stay-at-home revolution made cybersecurity a heightened concern for companies whose employees were suddenly scattered hither and yon. But these stocks have also, to one degree or another, been caught up in the broader tech decline that has unfolded over the past three months or so.

The following chart compares the year-to-date (YTD) performance of some of the well-known names in the space—Palo Alto Networks (PANW), Zscaler (ZS), Okta (OKTA), CrowdStrike (CRWD), and Fortinet (FTNT):

Chart 1: Palo Alto Networks (PANW), Zscaler (ZS), Okta (OKTA), CrowdStrike (CRWD), Fortinet (FTNT), 12/31/20–5/17/21. Cybersecurity stocks price chart. Cybersecurity YTD.

Source: Power E*TRADE


While this may appear to be a chart of FTNT and “others,” it’s important to note that all these stocks are still up more than 100% from their March 2020 lows—and all have outperformed the Nasdaq 100 (NDX) over that stretch, even though the bottom four have underperformed the tech index so far this year.

Also, the underperformers have all retraced between 30-50% of their March 2020–February 2021 rallies, and have recently tested, or come close to testing, their YTD lows.

It remains to be seen whether recent events will be the catalyst for another cybersecurity rally, but given how much this formerly high-flying group has pulled back as a whole, some traders may be watching for signs that it’s diverging from the rest of tech.

Final note: PANW is scheduled to release earning after the closing bell this Thursday (May 20). Yesterday the options market was pricing in a +/-6.5% earnings-day move.1

Tech check checkup. Following up on yesterday’s discussion of what the Nasdaq 100 (NDX) has done after four-week losing streaks, the following chart offers a slightly different perspective—how the NDX has performed after four-week sell-offs where it made a five-week (or longer) low and lost between 4-5%:

Chart 2: Nasdaq 100 avg. weekly returns after 4-week sell-offs. NDX weekly price patterns. More losses than gains, but gains bigger than losses.

Source: Power E*TRADE


Before last week, the NDX had 25 other pullbacks like this since 1985, and it closed higher the next week 12 times and lower 13 times. But the chart also shows that when the NDX did close higher the following week, its average gain was 3.8%—more than twice the size of its average loss (-1.6%) for the weeks it closed lower.2

Market Mover Update: June gold futures (GCM1) pushed to $1,867.60/ounce on Monday—their highest level since February 2 (see “Gold holds its ground”).

While lumber futures started the week by extending their sell-off, other markets that pulled back last week flipped to the upside—including copper and steel, which helped metal and mining stocks buck yesterday’s equity weakness (see “Metals stocks ride reopening trade”).

Today’s numbers include (all times ET): Housing Starts and Building Permits (8:30 a.m.).

Today’s earnings include: Analog Devices (ADI), Baidu (BIDU), Home Depot (HD), Macy’s (M), Walmart (WMT), Take-Two Interactive Software (TTWO).

 

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1 Source: Power E*TRADE.
2 All figures based on Nasdaq 100 (NDX) weekly prices, September 1985–May 2021. Supporting document available upon request.

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