Earnings pulled the rug out from under Fastly (NYSE:FSLY) stock last month, and it’s been stumbling around ever since.
Volatility lovers used to rapid gains from the cloud computing services provider have had to temper their enthusiasm and lower expectations. Sideways is the new up and the recent tech wreck is likely to extend the duration of the FSLY stock range.
After breaking down the outsized role that quarterly reports have played for Fastly in 2020, we’ll analyze the price action and identify the levels that matter most right now. The stock is around the middle of its range, giving little edge to both bulls and bears.
The Unparalleled Power of Earnings Reports
Quarterly earnings reports are the ultimate catalyst for stock prices. Think of them as the reality check when perceptions run wild. Sometimes prices become unmoored from a company’s fundamentals, either falling further or rising higher than justified.
It is at times like these that earnings announcements pack the most punch. It arrives to surprise the delusional and restore order and sanity to share prices that had been pushed to seemingly insane levels.
The repricing is rapid, usually occurring overnight. And here’s the beauty of it – the effect lingers. It sets the tone for the quarter to come. We’ve seen this phenomenon play out in FSLY stock throughout 2020.
In May, Fastly reported better-than-expected numbers. Analysts were expecting a loss of 16 cents per share, but the company only lost 6 cents per share. The beat suddenly changed the Street’s perception of how Fastly’s value. Bulls embarked on a buying binge that lasted three months and drove the share price up five-fold.
But, as is often the case, in their mission to correct the underpricing, they took things too far. The virtuous cycle lasted too long and carried prices far too high. In a poetic turn of events, the same catalyst that sparked the meteoric rise returned to end it. August’s earnings announcement was good, but it wasn’t that good. Certainly not enough to justify a three-month quintupling of the share price.
And so, another rapid repricing occurred. Over four sessions, FSLY gave back a third of its value, and it has been meandering ever since. The lingering effect has kept a lid on the stock, halting rallies and preventing buyers from pressing any minor advantages they’ve gained over the past six weeks. What was one of the fastest-trending and best profit-giving stocks on the street has become dead money.
Let’s take a closer look at the price chart to identify the levels to watch.
FSLY Stock Chart
The sideways shimmy emerging after last month’s post-earnings beatdown lasted long enough to kill the short- and intermediate-term uptrends. This fact is supported by two developments. First, we’ve broken and remain below the 20- and 50-day moving averages. Second, both smoothing mechanisms have lost their upward tilt and are now traveling sideways.
Trend traders despise crisscrossing moving averages. They signal indecision and neutrality, which are the enemies to directional speculators. Along the way, $74 has established itself as a major support zone. As long as we remain above it, it’s challenging to adopt a bearish posture. On the north side of the range, $100 has appropriately declared itself as the ceiling. Last month’s rebound attempt died on its doorstep, reinforcing sellers’ dominance.
At $82, FSLY finds itself perched between the two points. While I’d like to end today’s commentary with an insightful forecast declaring the eventual victor of this stalemate, I can’t. Until the stock picks a direction and departs the range, I see no reason to force a trade here.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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