CrowdStrike (NASDAQ:CRWD) stock was one of the beneficiaries of the pandemic. Coming out of the March 2020 lows, it soared with hardly any letup. It was clear early on that investors craved it. Sadly, of late it has been quite the opposite. The stock lost over 30% of its value since the October highs. I would argue that CRWD stock makes for a good knife to catch into support.
In all fairness, the rally to the October highs was insane. From the bottom of the Covid-19 crash it measured over 800% almost straight up. There were a few resting moments and I wrote about one in August of 2020. My thesis then was that CrowdStrike had support near $98 per share. Here we are today repeating it but at around $100 per share higher.
Clearly the levels have changed, but the spirit remains the same. This would be a rinse and repeat of what worked before but from a higher level. Therefore, investors should be vigilant with proper sizing and stop-loss levels. Nothing should have strong conviction near all time highs.
The S&P 500 broke new records over the weekend, which leaves investors vulnerable. From these altitudes, even though we don’t need a correction, one could come without warning. The longer we go without one, the more dangerous the consequence of one become. The bottom line is that we should not blindly trust the support levels even though they make sense.
CRWD Stock Is in Good Hands
Fundamentally, the bulls have every right to be excited about CRWD stock. The revenue growth has been phenomenal. Management grew the top line 10 times in four years. Its 12-months gross profit is now almost $1 billion. Clearly they are executing their plans very well. Critics could complain about the losses, but as long as they are growing this fast, they’d be wrong. Their first job should be to grow sales, then tweak the profitability later as it matures.
Amazon (NASDAQ:AMZN) and Salesforce.com (NYSE:CRM) are perfect examples of what a growth company can do. For a decade they battled naysayers over their thin margins. The critics finally caved as they saw the fruits of the spending labors come to fruition.
There Are Extrinsic Risks This Month
While I trust in the CRWD long-term prospects, there are short-term extrinsic risks. This week, the Federal Reserve (Fed) could make waves from headlines about policy. Last month, Fed Chair Jerome Powell laid out his plans for the taper process. If he veers drastically from it this month, he will likely spook investors.
Wall Street hates change, so they will not like him changing course. The worry would be that he saw a material change in 30 days. In reality nothing has changed, at least not from the public facing inflation reports. I expect him to stay the course and dodge questions on rate hikes for 2022.
The Dip Is the Right Course
Click to Enlarge
Regardless, in the end investors will shrug whatever uncertainty Powell may cause. Nevertheless, investors should either wait out the next two days or take small starter CRWD positions.
This situation is starting to look eerily like December of 2018. I hope that he learned his lesson and chooses his words carefully. Back then, his choice of words caused a crash and forced him to restart the quantitative easing (QE). The conspiracy theorist in me says there is a chance that Wall Street is pushing his buttons. I hope not.
In the end his responsibilities are clear: create jobs without causing inflation. For the last year, the government publicly ignored inflation to fix the pandemic joblessness. Since we are back to full employment, he must battle inflation. I don’t think he can do quantitative tightening (QT) by raising rates. I expect him to start selling assets, which means he must accelerate his taper.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
