Software Stock Pullback Signaling Bulls to Move In

Shares of Cloudflare Inc (NYSE:NET) are down 4.6% to trade at $309.35, pacing for a fourth-straight losing session amid broader tech weakness. The shares are extending a pullback from their Oct. 6 all-time high of $370, which have brought them down to a historically bullish trendline. Year to date, the stock is up 57.4%.

Per Schaeffer's Senior Quantitative Analyst Rocky White, NET has traded 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 above the trendline. This setup has occurred 10 other times over the last decade, after which the stock was higher one month later 70% of the time, averaging an 9.5% gain.  

Options traders have been leaning bearish, too. NET's 50-day put/call volume ratio of 0.87 at the International Securities Exchange (ISE) and Cboe Options Exchange (CBOE) ranks in the 98th percentile of its annual range. So while calls still outnumber puts on an absolute basis, this elevated ratio suggests an unwinding of pessimism could provide additional tailwinds for the stock.

Furthermore, Cloudware stock's 14-day Relative Strength Index (RSI) of 28 sits in "oversold" territory, which typically precedes a short-term bounce.