Mapping the Market: Bulls beware — CrowdStrike shares could be in for more losses

Shares in cybersecurity company CrowdStrike have more than tripled from this year's low to last week's ​record high, but bulls should be warned: there are troubling signs on the ​charts, technical analysis indicates.

Click here for a detailed technical ‌analysis ​chart. Technical analysis uses past price action to map out future moves. One thing in particular chart watchers focus on is identifying price points that might provide support in a falling market — effectively a floor for the stock — and resistance, or something that will function ‌as a ceiling when it’s rising.

Many analysts also rely on candlestick charts, which show the evolving balance between buyers and sellers by how they display key prices such as the open, high, low and close for a day, week or other period in one bar. Over time, market watchers have recognized that certain price patterns on those candlestick charts have foreshadowed a ‌pause or end of a rally. One of these patterns showed up on CrowdStrike’s weekly chart. Called a doji, this formation occurs when a stock closes near where it ‌opened during a certain period and the price retreats from the highs and lows. Most often a doji signals market indecision, but it is also a warning of potential losses after a rally — which places added emphasis on what the share price does next.

The bad news for CrowdStrike bulls is this doji — which appeared on the stock’s chart when it hit a record high of $286.99 last week, according to data supplied ⁠by LSEG — was followed ​by falling prices this week. Weekly charts ⁠are important because they help confirm whether a trend is developing over time rather than a short-term blip. When charts flash warning signs like this, analysts seek confirmation, particularly in gauges of market momentum. Two widely used tools ⁠are the weekly Relative Strength Index and the Moving Average Convergence Divergence. Both are pointing lower.

If CrowdStrike extends its retreat, now is the time technical analysts will want to know where to find ​support levels. One way they can do that is by defining the parameters of the stock’s rally. In other words, since stocks rarely move in a straight ⁠line, understanding the scale of pullbacks during a rally can help predict where they might stop. A widely used tool for doing this is a trend channel. Another tool, Bollinger Bands — an average of the stock price sandwiched ⁠between ​two lines — also helps. Currently, these are suggesting initial targets for losses could be around $215, followed by $200 and then $180.

However, if bulls can push the stock back above the $262 to $263 area, the negative outlook would probably dissipate, while a rise beyond the $276 to $277 zone could signal a resumption of the upward trend. CrowdStrike did not immediately respond to an email requesting ⁠comment.

What the chart shows: (Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The ‌column does not constitute investment ‌advice or trading recommendations. )

(Christopher Romano is a Reuters market analyst. The views expressed are his ​own; Editing by Burton Frierson and Rod Nickel)