Leading digital advertising and financial technology company, Cardlytics (NASDAQ:CDLX), reported its fourth-quarter results after market closing yesterday. Although the company missed analysts’ EPS and revenue expectations by $0.03 and $0.35 million, respectively, its stock jumped over 37% post-market buoyed by optimistic guidance for Q1 2024.
From bullish peaks to bearish strugglesFollowing a remarkable bull run between 2019 and 2020 that saw the stock reach highs above $160 in early 2021, Cardlytics experienced a significant downturn, losing over 98% of its value and bottoming out near $2.6 in March of last year. While the stock has since recovered, reaching highs close to $20 in September, it has struggled to surpass the $10 level for an extended period.
Near-term supports and resistancesOver a stretch of nearly three years, Cardlytics’ stock has consistently leaned in favor of those who’ve bet against it, offering plentiful chances for selling short. These opportunities, attractive due to their risk-reward ratios, have caught the attention of many investors. However, recent shifts in the market suggest that this trend might be starting to change.
For the past four months, the stock has remained quite steady, bouncing multiple times from the $5.70 level. This stability indicates that the stock is showing strength at this price point, which is marked as Support 1 on the charts.
In addition to this initial support, Cardlytics’ stock finds further reinforcement around the $4.80 level (Support 2), a point from which it has historically demonstrated resilience through multiple rebounds in the previous year. Should these support zones be breached, the stock may face a precipitous decline towards its historical lows near $2.5, which represents a pivotal medium-term support denoted as Support 3.
Looking ahead at near-term barriers, a formidable challenge presents itself at the $10 mark, demarcating a significant resistance level, termed Resistance 1. This milestone not only poses a psychological barrier but also signifies a notable technical obstacle for the stock. Surmounting this resistance could signal a notable shift in market sentiment, potentially fueling further upward momentum.
However, surpassing $10 would merely be the beginning of the journey, as the next substantial hurdle lies at $14.20, identified as Resistance 2. Overcoming this resistance level would necessitate a substantial 42% surge in the stock’s price, representing a formidable challenge for investors seeking sustained upward movement.
Strategies for capitalizing on Friday’s reboundWhile Cardlytics’ recent performance has favored bearish investors, the time for bulls might finally have come. Anticipated to open significantly higher—35 to 40% above yesterday’s closing price—bullish sentiment is poised to dominate today’s trading.
Based on pre-market indicators, it’s likely that the stock will open above $10. For bullish investors, the approach is straightforward: consider initiating long positions at the market open, with a stop-loss set just below $10. Alternatively, one can employ a trailing stop-loss strategy, utilizing the lower boundary of the 20-day Donchian channel.
Should the stock sustain trading above $10, investors can expect the stock to reach the second resistance and the first price target of this move at $14.20 in the days ahead.
Bearish investors may encounter challenges in pushing the stock lower if it maintains trading above $10. Conversely, a failure to sustain this level could signal continued validity of the head and shoulder pattern depicted in the chart. Falling below the second support at $4.80, which is also acting as a neckline for the head and shoulder pattern could precipitate a significant downturn in the stock.
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