Cloudflare Inc. has seen about 400% increase since IPO. At this point I would say that the moon has been reached. Now let's do some speculation on what comes next.
Let's start with some basic observations on the weekly chart. After the initial drop from IPO price, the stock has made significant moves with higher highs and higher lows without any log term corrections. Each pullbacks have been significant, anywhere between 20 to 35%. And after each pullback, there have been explosive upward movements. The red boxes show the the consolidations/correction areas and green boxes show the expansions. The first two expansions hit 1.272 fib extension from one correction to the next. The third expansion hit 2.272 fib extension. the last one is pebble throw away form 3.272 fib extension. Since the March lows, the price has been neatly following a very steep upward channel and now hitting the ceiling.
Zooming into the daily chart now. All of the previous expansions created a pennant pattern then ended with a huge parabolic move that broke the pennant upwards and hit the top of the channel. This time around, the pennant is breaking downwards and the price is already hitting the top of the channel. Daily RSI has a bearish divergent present, but price already tested 20 daily EMA. So divergence might have played out for the time being. Daily MACD negative cross came on the top of the channel, and there is a negative divergence on the histogram.
Flipping back to weekly chart. RSI looks strong, but getting into the overbought area. Accumulation/distribution indicator looks interesting. Let's talk about accumulation/ distribution indicator for a bit. This indicator can provide some insight into the asset. I only look at the slope at a higher timeframe like weekly or monthly chart and not so much into any cross or the numbers. The angle and slope starts an upward angle towards the end of consolidation or after the major selloff is complete. Similarly the top starts to get rounded at the end of the expansion. If the indicator starts a downward angle from next week, then the top might be in. It doesn't mean the price will go down now. Price decline will start when the accumulation/distribution indicator has a steep downward angle established. Right now this looks to be done with rounding up the top and ready to move downward, but not
confirmed yet.
So what happens next? Well, there could be several ways things can unfold.
Scenario 1: Straight drop form here. The red line shows the similar way corrections happened in the past. A retrace to .618 fib retracement to the bottom of the channel and upwards and onwards again. The Purple line shows a deeper retrace to maybe .382 then a more relaxed upward movement creating a new channel maybe.
Scenario 2: Slight down or sideways from here then make another move before a much larger correction. Blue line shows maybe a quick retrace to .786 and make a move to higher fib extension level and then a much deeper correction before moving up slowly and steadily. Green line is similar but a sideways correction in time before making a parabolic move and deep correction afterwards, maybe a bit less severe.
Scenario 3: Like previous tops go parabolic now and hit 4.727 or higher, breaking out of the channel upwards as the black line shows. In this case the correction will be for the entire price action so far. It could go down to test initial horizontal support areas or close some gaps that are left since October.
Right now the best action is to hold tight for longs and set some take profit and stop loss areas or wait for an entry point down south. Let's see how this plays out. Long term, this is definitely something to hold in the portfolio at some point. The future looks bright.
Let's start with some basic observations on the weekly chart. After the initial drop from IPO price, the stock has made significant moves with higher highs and higher lows without any log term corrections. Each pullbacks have been significant, anywhere between 20 to 35%. And after each pullback, there have been explosive upward movements. The red boxes show the the consolidations/correction areas and green boxes show the expansions. The first two expansions hit 1.272 fib extension from one correction to the next. The third expansion hit 2.272 fib extension. the last one is pebble throw away form 3.272 fib extension. Since the March lows, the price has been neatly following a very steep upward channel and now hitting the ceiling.
Zooming into the daily chart now. All of the previous expansions created a pennant pattern then ended with a huge parabolic move that broke the pennant upwards and hit the top of the channel. This time around, the pennant is breaking downwards and the price is already hitting the top of the channel. Daily RSI has a bearish divergent present, but price already tested 20 daily EMA. So divergence might have played out for the time being. Daily MACD negative cross came on the top of the channel, and there is a negative divergence on the histogram.
Flipping back to weekly chart. RSI looks strong, but getting into the overbought area. Accumulation/distribution indicator looks interesting. Let's talk about accumulation/ distribution indicator for a bit. This indicator can provide some insight into the asset. I only look at the slope at a higher timeframe like weekly or monthly chart and not so much into any cross or the numbers. The angle and slope starts an upward angle towards the end of consolidation or after the major selloff is complete. Similarly the top starts to get rounded at the end of the expansion. If the indicator starts a downward angle from next week, then the top might be in. It doesn't mean the price will go down now. Price decline will start when the accumulation/distribution indicator has a steep downward angle established. Right now this looks to be done with rounding up the top and ready to move downward, but not
confirmed yet.
So what happens next? Well, there could be several ways things can unfold.
Scenario 1: Straight drop form here. The red line shows the similar way corrections happened in the past. A retrace to .618 fib retracement to the bottom of the channel and upwards and onwards again. The Purple line shows a deeper retrace to maybe .382 then a more relaxed upward movement creating a new channel maybe.
Scenario 2: Slight down or sideways from here then make another move before a much larger correction. Blue line shows maybe a quick retrace to .786 and make a move to higher fib extension level and then a much deeper correction before moving up slowly and steadily. Green line is similar but a sideways correction in time before making a parabolic move and deep correction afterwards, maybe a bit less severe.
Scenario 3: Like previous tops go parabolic now and hit 4.727 or higher, breaking out of the channel upwards as the black line shows. In this case the correction will be for the entire price action so far. It could go down to test initial horizontal support areas or close some gaps that are left since October.
Right now the best action is to hold tight for longs and set some take profit and stop loss areas or wait for an entry point down south. Let's see how this plays out. Long term, this is definitely something to hold in the portfolio at some point. The future looks bright.