The Bottom Line:
- Crowd Strike experienced a significant drop after a software glitch, but a bullish engulfing pattern suggests a potential reversal.
- The stock has formed a ‘secure low’ with two higher lows, indicating a potential bottom.
- The stock has retraced to the 61.8% Fibonacci level, which is a common support level.
- The expert has entered a long position and sold a put option, providing a favorable risk-to-reward ratio.
- Potential upside targets are identified at the 38.2% Fibonacci retracement and the 20-day moving average, around $275-$280.
Analyzing the Software Glitch and Bullish Engulfing Pattern
Examining the Bullish Engulfing Candle
The recent price action in Crowdstrike (CRWD) has been noteworthy, particularly the bullish engulfing pattern that formed yesterday. This pattern occurs when the stock gaps down, taking out the previous day’s low, but then reverses course and closes above the prior day’s high. In CRWD’s case, it gapped below Friday’s low but then rallied to close well above Friday’s high, creating a powerful reversal signal. This type of price action is often seen as a sign that the selling pressure has been exhausted and that buyers are stepping in to support the stock.
Fibonacci Retracement Levels Provide Support
Looking at the two-year daily chart of CRWD, another bullish factor becomes apparent – the stock’s reaction to key Fibonacci retracement levels. After pulling back from its highs around $400, CRWD found support right at the 61.8% retracement of its two-year range, around the $200 level. This is a classic technical support area, and the fact that CRWD was able to hold above it and reverse higher adds credence to the idea that the worst of the selling may be over. Many technical traders view the 61.8% retracement as a key level, and a successful test of it can often lead to a significant bounce.
Potential Upside Targets
With the bullish engulfing candle and the successful test of Fibonacci support in place, the next question becomes where CRWD might be headed on the upside. The first area to watch will be the stock’s 20-day moving average, which is currently declining and sits around $247-$248. A move above this level would be a positive sign and could open the door to a continued rally.
Beyond that, the 38.2% retracement of the recent decline looms as a potential target in the $275-$280 zone. This would represent a significant move off the lows, but given the magnitude of the prior decline, it’s not an unreasonable objective if the bullish momentum persists. As always, it will be important to monitor price action closely and adjust targets as the chart develops.
Identifying the Potential Bottom with Higher Lows
Secure Low Formed by Higher Lows
In addition to the bullish engulfing pattern, CRWD’s chart also shows the formation of a “secure low.” This technical structure occurs when a stock forms a low that is flanked by two higher lows on either side. In this case, Friday’s low was followed by a higher low on Monday around the $200 level, and then an even higher low on Tuesday. This sequence of higher lows suggests that the downside momentum is waning and that buyers are becoming more aggressive on dips.
Selling Puts to Capitalize on Expected Move
Given the bullish technical setup, one potential trade idea is to sell put options in CRWD. With the stock trading around $231, the $220 puts expiring this Friday could be an attractive option. The expected move for this week is around $10, so selling the $220 puts would place the strike price outside of this range. If CRWD remains above $220, the puts will expire worthless, allowing the seller to keep the premium collected. If the stock does drop below $220, the put seller would be obligated to buy shares at that level, which could be an attractive entry point given the bullish long-term outlook.
Managing Risk and Reward
As with any trade, it’s crucial to have a clear plan for managing risk and targeting potential rewards. In this case, the $220 level could serve as a logical stop-loss point, as a sustained break below this area would invalidate the bullish technical setup. On the upside, the $275-$280 zone is a reasonable initial target, with the potential for further gains if the stock can clear this resistance area. By using a combination of stock and options positions, traders can customize their risk/reward profile and adapt to changing market conditions as the trade unfolds.
Exploring the Fibonacci Retracement Support Level
Fibonacci Retracement Levels Provide Key Support
Taking a step back and examining the bigger picture, the Fibonacci retracement levels from CRWD’s two-year range offer important insight into potential support areas. After the stock’s meteoric rise to nearly $400, it has since pulled back sharply, but the 61.8% retracement level around $200 has held as strong support. This is a critical level watched by many technical traders, as it often represents a key area where buyers may step in to defend a stock after a significant decline.
In CRWD’s case, the stock briefly dipped below this 61.8% retracement in recent sessions but was able to quickly recover and close back above it. This type of price action, known as a “look below and fail” pattern, is often seen as a bullish sign, suggesting that the selling pressure may be exhausted and that the stock is ready to resume its upward trajectory. The fact that CRWD was able to find support at this key Fibonacci level and then stage a strong reversal is a promising sign for the bulls.
Potential Upside Targets Based on Fibonacci Levels
Looking ahead, if CRWD can build on its recent bullish momentum, the Fibonacci retracements from the recent decline offer some potential upside targets. The first level to watch will be the 23.6% retracement, which sits around $248. A move above this level would be a positive sign and could open the door to a test of the 38.2% retracement in the $275-$280 zone.
While these are just initial targets, they provide a useful framework for gauging the potential scope of a recovery rally. As always, it will be important to monitor price action closely and adjust targets as the chart develops. If CRWD can clear the 38.2% retracement and maintain its bullish momentum, there could be room for a more significant move higher over time. However, if the stock struggles to overcome these key Fibonacci levels, it could be a sign that the recovery is losing steam and that a more cautious approach may be warranted.
Combining Fibonacci with Other Technical Indicators
While the Fibonacci retracements provide a useful context for analyzing CRWD’s chart, it’s important to consider other technical indicators as well. For example, the stock’s moving averages can offer insight into the underlying trend and potential areas of support or resistance. In particular, the 20-day moving average has been a key level to watch in recent months, with CRWD finding support near this level during its previous pullbacks.
As the stock attempts to recover from its recent decline, a move above the 20-day moving average could be an important bullish signal, suggesting that the short-term trend is shifting in favor of the bulls. Conversely, if CRWD struggles to overcome this moving average, it could be a sign that the recovery is losing momentum and that further consolidation may be needed before the stock is ready to resume its upward trajectory.
By combining the insights from Fibonacci retracements with other technical indicators like moving averages, traders can gain a more comprehensive view of CRWD’s chart and make more informed decisions about potential entry and exit points. As always, risk management is crucial, and it’s important to have a clear plan in place for managing positions and protecting capital in case the trade doesn’t unfold as expected.
Expert’s Long Position and Put Option Strategy
Selling Put Options to Capitalize on Expected Move
Given the bullish technical setup in CRWD, one potential trade idea is to sell put options to capitalize on the stock’s expected move. With the stock trading around $231, the $220 puts expiring this Friday could be an attractive option. The expected move for this week is around $10, so selling the $220 puts would place the strike price outside of this range.
If CRWD remains above $220, the puts will expire worthless, allowing the seller to keep the premium collected. This strategy can be particularly effective when the trader believes that the stock has found a near-term bottom and is likely to trade sideways or higher in the coming days.
Managing Risk and Reward in the Options Trade
As with any trade, it’s crucial to have a clear plan for managing risk and targeting potential rewards. In this case, if CRWD does drop below $220, the put seller would be obligated to buy shares at that level. However, this could still be an attractive entry point for a long position, given the bullish long-term outlook for the stock.
To manage risk, the $220 level could serve as a logical stop-loss point for the trade. A sustained break below this area would invalidate the bullish technical setup and suggest that further downside may be in store. By using a well-defined stop loss, traders can limit their potential losses if the trade doesn’t unfold as expected.
Combining Options with Long Stock Positions
In addition to selling puts, traders may also consider buying shares of CRWD outright to capitalize on the potential upside. The $275-$280 zone is a reasonable initial target for the stock, with the potential for further gains if it can clear this resistance area.
By using a combination of stock and options positions, traders can customize their risk/reward profile and adapt to changing market conditions as the trade unfolds. For example, if CRWD rallies sharply and the put options expire worthless, the trader may choose to hold the long stock position to capture further upside. Alternatively, if the stock struggles to gain traction, the trader may opt to close the stock position and focus on managing the options trade to minimize potential losses.
Upside Targets and the 20-Day Moving Average
Analyzing the 20-Day Moving Average
As CRWD attempts to recover from its recent pullback, the 20-day moving average will be a key level to watch. This moving average has acted as both support and resistance for the stock in the past, and a decisive move above it could signal that the short-term trend is shifting in favor of the bulls. Traders will be closely monitoring how CRWD interacts with this moving average in the coming sessions, as a sustained breakout could pave the way for a test of the upside targets outlined earlier.
Potential Resistance at the 38.2% Retracement
If CRWD can maintain its bullish momentum and break above the 20-day moving average, the next major hurdle will be the 38.2% Fibonacci retracement level, which sits in the $275-$280 zone. This area represents a significant level of potential resistance, as it aligns with previous support levels from earlier in the stock’s decline. A successful break above this zone could open the door to a more substantial recovery, but traders should be prepared for the possibility of a short-term pullback or consolidation phase as the stock approaches this key level.
Monitoring Price Action for Confirmation
While the technical setup in CRWD appears promising, it’s essential to remain flexible and adapt to changing market conditions as the trade unfolds. Traders should closely monitor price action for signs of confirmation or divergence from the bullish thesis. For example, if the stock fails to hold above the 20-day moving average or struggles to make progress beyond the initial upside targets, it may be prudent to adjust the trade plan accordingly. Conversely, if CRWD shows strong momentum and volume as it breaks through key resistance levels, traders may consider adding to their positions or extending their upside targets to capitalize on the potential for a more significant move higher.
