CRWD Stock Hits Key Inflection Point Ahead of Earnings

After falling alongside many technology stocks at the start of November, CrowdStrike Holdings Inc. (NASDAQ: CRWD) has rebounded sharply, hitting a new all-time high on Nov. 12.

Although shares have since retreated slightly, they are consolidating at a level that would have been considered an all-time high in late October. The renewed strength in CRWD stock comes amid continued market volatility—but when it comes to cybersecurity stocks, and CrowdStrike in particular, investors don’t seem to care.

Analysts Expect a Strong Quarter

CrowdStrike is set to report earnings in late November, which is widely expected to be the next catalyst. Wall Street’s "whisper number" for CRWD stock earnings is $1.07. That’s significantly higher than the consensus estimate of 94 cents per share on revenue of $1.21 billion.

The whisper number is an unofficial estimate of professional traders and analysts. These professionals base their estimates on intuition, experience and internal data, offering a unique and often accurate perspective on a company’s expected performance.

Still, this earnings season has reminded investors that even a beat-and-raise quarter is no guarantee that a stock will keep moving higher. It’s all about the company's forward guidance, especially given the high bar CrowdStrike has already set with its consistent top- and bottom-line growth.

How Should Investors Interpret Recent Insider Selling?

When a stock gets as frothy as CRWD stock, many investors adopt the habit of selling first and asking questions later. One trigger point for investors is when they see insider selling. However, it’s essential to remember that insider buying and insider selling are two distinct activities.

Insiders generally buy a stock because they believe that their company’s stock price is undervalued, but when insiders sell a stock, it's often a different story altogether.

Take the three insider sales of CRWD stock that happened on Nov. 3. One of these sales, by a company director, was part of a 10b5-1 plan. That means it was scheduled months in advance and not likely a bearish signal. 

There were also the sales by CrowdStrike’s chief financial officer (CFO) and chief executive officer (CEO). However, looking at the SEC Form 4 shows that these sales were “made to cover tax withholdings due on vesting of restricted stock unit awards.”

This serves as a reminder that insider selling is typically not a reason for investors to sell, particularly when it involves normal compensation practices and activities. 

Understanding CRWD Stock’s Inflection Point

Even buy-and-hold investors can get insight from activity on a company’s options chain. CrowdStrike’s options chain for Nov. 28 suggests that traders are positioning for significant price movement. There are three key things to note:

• Elevated Implied Volatility: Implied volatility reflects the market’s expectations of a stock’s future price fluctuations. Looking at the CRWD options chain shows that the implied volatility at most strike prices is at or above 39%. That's a level that suggests traders expect above-average price movement heading into earnings.

• Increase in Open Interest: Several key strike prices (i.e., at $560 and $555) show increasing open interest (highlighted by green + changes), signaling new positions being initiated, possibly in anticipation of earnings-driven swings.

• A Bias Toward Call Contracts: This is another metric that hints at bullish sentiment or traders that are hedging for an upside surprise.

How to Approach CRWD Stock

With CRWD stock back near its highs, many investors face the age-old dilemma: to chase or not to chase? It's a valid question as CRWD stock just keeps marching higher.

On two separate occasions this year, CRWD stock has dropped by 20% or more, so investors eager to get in might wait for a similar pullback. 

CRWD stock is trading about 6% above the consensus price target of analysts. Those targets have been rising as the earnings release approaches, but any sign of weakness in the report could pressure the stock.

Technically, the stock has an RSI around 65, which is near the overbought range, and the moving average convergence divergence (MACD) line is showing signs of a bearish reversal. It would almost seem too much to ask for the stock to pull back to around its 200-day simple moving average (SMA). But that would give investors that dip of around 20%. A more likely scenario could have CRWD stock pulling back to its 50-day SMA, still a buyable dip.

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The article "CRWD Stock Hits Key Inflection Point Ahead of Earnings" first appeared on MarketBeat.