CrowdStrike (NASDAQ:CRWD) stock bulls scored a critical victory by holding their first support test in months. The positive development came as the Nasdaq composite fell prey to profit-taking. As always, the weakness made investors second guess their tech holdings.
Fortunately, only a few completely abandoned ship. The rest held on, helping CRWD stock and many other momentum names bounce back to avoid breaking below major moving averages.
Today we’re taking a fresh look at CrowdStrike to identify the new price levels that matter moving forward.
CRWD Stock Weekly View
Context matters when analyzing price charts. Without a sense of the big picture, you will read too much into noise, likely overreacting to short-term shifts.
To identify the broader trends driving the behavior of market participants, let’s look at the weekly time frame. Each candle represents an entire week. In other words, five days are compressed into a single candle.
Because CrowdStrike only just went public last June, the story told by the weekly chart is relatively short. Since the March bottom, we’ve seen a nearly four-fold increase in prices. Along the way, CRWD stock smashed every resistance level and burst to a new record of $118.58.
As you’d expect with a stock basking in virgin territory, it sits above all weekly moving averages. In this case, that’s the 20-week and 50-week. The stock isn’t yet old enough to create anything longer.
The pullback from the highs has been orderly and contained so far. Old resistance from last August’s peak has turned into new support, proving that spectators were quick to buy at the first potential buy zone.
It also underscores the psychological significance of whole numbers. It’s not a coincidence that the reversal came into play at $100. While the drop may have appeared dramatic on the daily chart, as far as the bigger picture goes, the past two weeks was nothing more than a garden variety retracement. It allowed overbought pressures to ease and a more sustainable uptrend to emerge.
Had we broken support or had a deeper correction, then more caution would be warranted.
Drilling down to the daily chart provides more detail surrounding the recent pullback. In fairness to bears, we did close below the 20-day moving average for essentially the first time since the epic ascent began in March. It thus marks this pullback as the most significant one of the trends.
The formation of the lower pivot high last week at $108.50 was also concerning. But here’s where things turn more positive.
Monday’s support test held the prior pivot low and the rising 50-day moving average. It enabled the uptrend to remain intact. Volume patterns also suggested the selling lacked conviction. The four consecutive down days carrying us into this week all had below-average participation. We’re talking mild profit-taking, not massive institutional-driven distribution.
The final piece of our bullish argument is this morning’s impressive strength. CrowdStrike is the hottest tech stock on my watchlist, gaining 4.6%. The rally is catapulting it back above the 20-day moving average and to the cusp of an upside breakout. A push above the $108.50 resistance could clear the deck for a run back to its all-time high.
If you want to bet CRWD stock rises back toward $120 in the coming weeks, then bull call spreads offer an attractive risk/reward.
The Trade: Buy the Sep $110/$120 bull call spread for around $3.80.
The initial cost represents the max loss and will be forfeited if CRWD sits below $110 at expiration. To capture the max gain of $6.20, the stock needs to climb above $120.
Tyler Craig is a member of the Chartered Market Technician’s Association and holds the CMT designation. His entire adult life has been dedicated to helping individuals learn how to trade as an elite instructor and personal mentor. To join his team and the best trading community on the planet, click here. At the time of this writing, Tyler didn’t hold positions in any of the aforementioned securities.