'PreMarket Prep' Breaks Down The CrowdStrike Q2 Earnings Trade: 'I Am Staying Away'

Trading an issue following an earnings report can be treacherous. On many occasions, the levels reached in either premarket or after-hours trading are never revisited. Therefore, relying on the last few days of price action may be the course of action to exit or enter an issue.

That is certainly the case with Crowdstrike Holdings Inc CRWD, which is Wednesday's PreMarket Prep Stock of the Day following its second-quarter report. 

CrowdStrike's Rebound Off June Low: After peaking last November at $298.48, the issue began a prolonged retreat. Along with many other high price-to-earnings growth stocks, the decline ended ahead of the broad market in June, with CrowdStrike bottoming on May 12 at $130.

That low came in between its November 2020 low ($118.10) and its December 2020 low ($138.24).

The high for the rebound was made on Aug. 11 ($205.75) and the closing high for the rebound was not made until Aug. 25 at $202.94.

Position Squaring: Prior to an earnings report, investors will attempt to trim their positions (either or long short) ahead of the report to limit their exposure to upcoming volatility. This was evidenced by the issue having a similar range on Monday and Tuesday.

The highs came within a dollar (Monday at $197.19 and Tuesday at $198.14). The lows were a bit wider but still close, for nearly a $200 issue (Monday at $190.69 and Tuesday at $189.12).

CrowdStrike's Q2 Report: After the close on Tuesday, the company reported quarterly earnings of 36 cents per share, which beat the analyst consensus estimate of 27 cents per share.

The company reported quarterly sales of $535.2 million, which beat the analyst consensus estimate of $515.42 million.

Finally, the company announced modestly higher third-quarter guidance for EPS and revenue.

PreMarket Prep's Take: When the issue was being covered on the show Wednesday, it was trading nearly $2 in the green at the $195 area.

“Cybersecurity has held up pretty well; it is something that is certainly needed," said co-host Dennis Dick. “With that being said, their valuations are too high for me, so I am staying away.”

The author of this article alerted investors to the ranges from the last two sessions, citing the $198 area as potential resistance and the $190 area as potential support.

CRWD Price Action: After a higher open ($197.21 vs. $193.30), the issue immediately peaked just ahead of the aforementioned resistance level at $197.94 and sharply reversed course. As of 10:45 a.m. EST, sellers have engulfed the issue and it has easily breached the potential support area and continues to make new lows for the session.

If the rapid decline continues, there is a trio of lows from $178.06 to $179.52 on July 29 and Aug. 1 and 2. 

The discussion on CrowdStrike from Wednesday’s show can be found here:

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