Cloudflare Inc (NYSE:NET) shares were last seen down 4.8% to trade at $213.35, heading for a fourth-straight loss. Despite a June 4 record high of $276.63, Cloudflare has suffered an 11.7% drawdown in June. The upside, however, is the stock is testing support at the 50-day moving average, which has a history of yielding strong positive returns.
According to Schaeffer's Senior Quantitative Analyst Rocky White, NET is trading within 0.75 times the 50-day moving average's 20-day average true range (ATR), after spending at least 80% of the previous two weeks and 80% of the prior 42 trading sessions above that trendline. This setup has appeared nine times over the last decade, after which the stock was higher one month later 67% of the time, averaging an impressive 9.6% gain. A comparable rally from current levels would place Cloudflare stock at $233.83.
An unwinding of pessimism amongst options traders could provide tailwinds as well. NET's 10-day call/put volume ratio of 0.91 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks higher than 86% of readings from the past year, so while calls are still winning out on an absolute basis, puts have been much more popular than usual.
Cloudflare stock could also be an attractive premium-selling candidate per its Schaeffer's Volatility Scorecard (SVS) of 4 out of 100. This means the shares have consistently realized lower volatility than options traders have priced in over the past 12 months.
