Cloudflare (NET) was upgraded Friday to "buy" from "hold" by a sell-side analyst. Let's see if this recommendation is supported by the charts.
In our last review of NET back on November 5, I wrote that "Traders who are long should raise sell stops to $170 from $155. Continue to look for gains to the $328 area." Prices only got into the $210-$225 area in late November and made a sharp turn to downside. Traders should have been stopped out at the beginning of December.
In this updated daily bar chart of NET, below, we can see that prices have traded steadily lower since late November. Prices have broken below the 50-day and 200-day moving averages with no problem. The slope of the 50-day line quickly turned negative and the 200-day line is cresting. The On-Balance-Volume (OBV) line turned lower in November and by early December it had fallen below the zero line for a sell signal.
In this weekly Japanese candlestick chart of NET, below, we see a still bearish picture. Prices made a "V" top and quickly declined. A support zone around $135 did not really provide much buying interest and prices have plunged below the 40-week average.
The weekly OBV line shows weakness from November as sellers became more aggressive. The MACD oscillator crossed to the downside in early December for a take profit sell signal. An outright sell signal may not take long to realize.
In this daily Point and Figure chart of NET, below, we can see that prices reached and exceeded a downside price target of $119.
In this weekly Point and Figure chart of NET, below, we can see that the software is projecting a target of $29. Ouch. Maybe this is too bearish.
Bottom line strategy: I am sure the fundamental analyst who recommended the purchase of NET has their reasons but the charts and technical indicators are not on the same page. Avoid the long side of NET until a solid base has formed.
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