CrowdStrike Holdings (NASDAQ:CRWD) has experienced a dramatic 40% decline in its stock price over the past month. Yet, this hasn’t left market speculators searching for answers. CRWD stock commenced its now massive decline on July 19 amid a widespread IT outage that affected businesses worldwide and caused disruptions in various industries.
The negative sentiment around CrowdStrike appears influenced by recent news. On July 31, Edelson Lechtzin announced an investigation into potential securities fraud claims against Crowd Strike. But as the common saying goes, this may be a “buy the rumors, sell the news” opportunity.
As the dust settles amid substantial retribution in its share price, many are turning to CrowdStrike technical analysis for insights into potential entry points and signs of a trend reversal. Although the long-term CrowdStrike trend to the upside has ended for the time being, the recent tumble has brought CRWD share price near its golden ratio in the shorter term.
Investors and traders alike can better understand CRWD’s future potential and risks by evaluating both short- and long-term CrowdStrike technical analysis signals. So, here we go.
CRWD Still Overvalued Despite Solid Financials
The massive outage has evidently shaken confidence in the cybersecurity leader and raised questions about the company’s long-term prospects. Yet, CrowdStrike still boasts a strong financial performance, including 33% year-over-year (Y0Y) revenue growth and record free cash flow (FCF) of $322 million.
As of this writing, analysts remain optimistic about the 1-year CRWD share price prospects, projecting a price target of $359.15 per share. This equals a 61% upside at the current price level of $223 per share. However, this target may see a reduction in the near future as CRWD stock remains highly overvalued. It still trades at a price-to-earnings (P/E) ratio of 422x despite losing nearly half of its share value since the July 19 event.
With investors shifting away from high-growth tech stocks, it would be no surprise to see CrowdStrike eventually continuing its descent toward its 52-week low of $140.52 in the longer term. However, in the short and perhaps medium term, CrowdStrike technical analysis suggests the stock may stop and reverse soon.
Golden Ratio Offers Short-Term Bounce Opportunity
CrowdStrike’s sharp decline has breached the stock’s long-term uptrend, as evidenced by trading well below its 50-day and 200-day moving averages at $345 and $290.
However, its oversold condition could signal a short-term bounce. This is especially true if the next potential leg down reveals a divergence between the overly oversold Relative Strength Index (RSI) and CRWD prices.
Technical traders eye high activity levels for potential entry points. The $210 Fibonacci support, which acted as resistance in August 2022, may now serve as a key support area. The 61.80% Fibonacci retracement, also known as the golden ratio or golden pocket, is widely used by traders to identify potential reversal points in price trends.
If CRWD stock holds above $200-$210, it would signal a potential bullish reversal. This would halt the stock’s recent decline, offering a short-term bullish pullback.
Potential entries remain at the said level, targeting the swing low of $280 per share. Given a stop loss of $170 per share, this would offer a risk-reward profile of 1.9x. However, a break below $200 would increase bearish risk as the long-term trend reversal still points down.
The Bottom Line: Short-Term Entries at $200-$210
Crowdstrike’s recent 40% stock decline reflects broader market concerns about the company’s reliability. However, CRWD stock has now been punished substantially and may see a higher pullback or a full-blown reversal.
CrowdStrike technical analysis suggests potential support at the $200-$210 range, with the RSI setting the stage for a rebound. This is lower than the current level of $223 per share. However, net fund flows for CrowdStrike remain negative, indicating that institutional investors continue to pull out, which could support a decline toward the golden ratio.
While short-term volatility may persist, Crowdstrike’s long-term prospects in the cybersecurity sector remain strong. The estimates for both EPS and revenue show a positive growth trajectory over the next few years.
But proceed with caution in the near term. As CrowdStrike remains highly overvalued, any perceived shortfall in earnings or guidance can potentially lead to a sharp decline when it reports on Aug. 28.
On the date of publication, Stavros Tousios 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
