Cloud Stock Ripe For Post-Earnings Rally

Fastly Stock Faces Volatility Ahead of Q4 Earnings

Shares of Fastly (FSLY) have dipped 2% to $9.85 as of the latest update, marking a multi-week low as investors brace for the company’s fourth-quarter earnings release. Scheduled to be announced after market close on February 12, analysts are predicting a breakeven performance for the quarter. Despite this, FSLY is currently hovering just above its year-to-date breakeven level and has struggled over the longer term, shedding 57% of its value over the past 12 months. However, history may be on the side of bulls, as the stock has reached a level that, according to Schaeffer’s Quantitative Analyst Rocky White, has historically been a bullish signal.

A Bullish Historical Signal Emerges

Rocky White’s analysis notes that FSLY has recently approached within one standard deviation of its 50-day moving average, after spending a significant amount of time above this trendline. Specifically, the stock has traded above the 50-day moving average at least 80% of the time over the past two months and for eight of the last 10 trading days. This technical setup has occurred four times in the past three years, and in each instance, the stock has delivered an average one-month return of 17.8%, with positive outcomes in 75% of these cases. If history repeats itself, a rally of this magnitude could propel FSLY above $11.50 for the first time since December, breaking through a key resistance level.

A Mixed Earnings History and Elevated Options Activity

Fastly’s track record on earnings day has been inconsistent, with the stock finishing four of its last eight post-earnings sessions in the red. On average, the stock has experienced an 18% swing in price, regardless of direction, following its earnings reports. This time around, options traders are bracing for an even larger move, with expectations of a 28.9% swing. This heightened anticipation could be driven by the stock’s current technical position and the potential for positive earnings surprises, especially given the challenging year FSLY has endured.

Room for Upgrades and Short Squeeze Potential

From a fundamental perspective, there is significant room for upgrades. Out of the 11 brokerage firms covering FSLY, 10 have assigned a rating of “hold” or worse, leaving ample opportunity for analysts to revise their outlooks upward if the company delivers a strong earnings report or provides optimistic guidance. Additionally, the stock remains vulnerable to a short squeeze, as short interest accounts for 7.1% of its total available float. A positive earnings surprise or a bullish technical breakout could spark a wave of short covering, further fueling upward momentum.

High Volatility Expectations Create Opportunities for Options Traders

Options traders are in a favorable position, as Fastly’s Schaeffer’s Volatility Scorecard (SVS) ranks at 91 out of 100. This indicates that the stock has consistently outpaced options traders’ expectations for volatility over the past year, making it an attractive play for those selling or buying premium. With a high SVS ranking, options traders are more likely to benefit from elevated volatility, whether the stock moves upward or downward in the days and weeks following the earnings announcement.

Conclusion: A Pivotal Moment for Fastly Investors

Fastly’s upcoming Q4 earnings report represents a pivotal moment for investors, as the stock teeters on the edge of a potential breakout. While the company’s struggles over the past year have weighed on investor sentiment, the emergence of a historically bullish technical signal, coupled with heightened options activity and the potential for upgrades, suggests that the tide could be turning. For traders and long-term investors alike, the next few days will be critical in determining whether FSLY can reclaim its momentum and begin a new chapter of growth.