Cloudera (NASDAQ: CLDR) Stock Sell-Off Provides Long-Term Buying Opportunity

Shares of data analytics platform Cloudera NASDAQ: CLDR got pummeled after reporting a (not so) surprising Q1 Fiscal Year 2021 earnings beat on June 3^rd. The sell-the-news reaction underscores the recent market earnings reaction template. Stocks that rise sharply heading into an earnings release usually get sold-off despite the extent of the beat. This has been repeated constantly during the pandemic throughout different sectors and industries. Identical earnings beat and sell-off reactions occurred for video game developer Take-Two Interactive NASDAQ: TTWO , video conference platform Zoom Video Communications NASDAQ: ZM and most recently enterprise workflow platform Slack Technologies NASDAQ: WORK. All Companies exceeded consensus analyst estimates but shares collapsed after their releases. In Cloudera’s case, the sell-off may provide prudent long-term investors with solid opportunistic entry levels.

Call Option Activity Preceding Earnings Release

Shares of Cloudera started to surge a week ahead of earnings as an explosion of options activity in the $12 to $14 calls hit screeners and radars. CNBC even pointed out the surge in the call options volumes which further accelerated call buying several days ahead of earnings. In the final hour ahead of the release on June 3^rd, the June 5^th $12 Calls were offered at $1.00 while the underlying shares were at $12.40. The $0.60 premium ahead of an earnings release was oddly cheap indicating a surplus of holders heading into the numbers.

Cloudera Q1 FY2021 Earnings

Cloudera released its earnings after the close on June 3^rd for quarter ending April 2020. EPS came in at $0.05-per share beating the $0.01-per shares consensus analyst estimates. Revenues grew to $210.46 versus $204.65 million analyst estimates, up $12.3% year-over-year (YoY). Considering the pandemic backdrop, Q1 results were impressive. They forecast Q2 EPS between $0.06 to $0.07 versus $0.05 estimates on lowered revenues of $206 to $209 million versus $212.26 (pre-pandemic) consensus analyst estimates. The Company also gave guidance on FY2021 EPS of $0.26 to $0.30 versus $0.24 consensus estimates but lowered top line to $825 to $845 million range versus $857.90 estimates.

When the Smoke Clears

Revenues are less prone to financial engineering than EPS. Cloudera handily beat Q1 and updated Q2 and FY 2021 EPS to beat estimates, but the lowered top line guidance could be the disappointing factor triggering the sell-off. There’s also the argument that analysts were slow to adjust their estimates to account for the COVID-19 pandemic and thus applying the pre-COVID-19 estimates does investors an injustice. Investors looking for a value opportunity should monitor the continued selling on CLDR stock as trapped call buyers continue to unwind their positions. There is a rare monthly bullish monthly seed wave formation that longer-term investors should pay attention to.

Opportunistic Entry Levels

Using the rifle charts on a monthly, weekly and daily time frame provides a broader view of the landscape for CLDR stock. The monthly rifle chart triggered a market structure low (MSL) above a bullish stochastic mini pup in place with 5-period moving average (MA) support at $9.03. The weekly chart also has a stochastic mini pup with the 5-period MA at the $9.42 Fibonacci (fib) level. Note how CLDR shares spiked up to tag the $12.50 upper Bollinger Bands (BBs) into the day of the release only to peak out and collapsed triggering a daily market structure high (MSH) sell trigger below $10.71. The excess of $12-$14 call buyers accelerated the selling which can provide opportunistic pullbacks at these key levels: $9.42 fib, $8.56 fib and $7.69 super fib. Nimble traders can trade the fib inflection points on the chart. Longer-term investors can look to scale in with a pyramid style allocation model (light to heavy as prices fall) to average in a solid position at better prices. Risk tolerant investors with level 4 options permissions can also sell put near the opportunistic price levels with the intention of being assigned shares at the strike prices. There is a proverbial “ace” up the sleeve on this play due to the formation of a rare monthly seed wave pattern. This is formed by having two consecutive higher MSLs. The key stipulations is the stock needs to stay above the second MSL at $6.46 and maintain the monthly and weekly rising stochastic. The daily stochastic crossover back up would be the momentum trigger. If all conditions are met, then the seed wave technically triggers above the $12.60 level. This sets up three clear targets and potential price reversal zones (PRZs) based on the 1.27, 1.414 and ultimately 1.618 fib. These upside targets are $14.20, $15.25 and $16.75. Since this a monthly pattern, it may take several months to play out, so patience is key.