Cloudflare (NET) Surges 4.78% on Two-Day Gains Trading Above 200-Day MA Amid Overbought RSI

Cloudflare (NET) has rallied 3.37% in the most recent session, extending its two-day gain to 4.78%. The stock is currently trading above its 200-day moving average, suggesting a medium-term bullish bias. Recent price action shows a series of higher highs and higher lows, consistent with a primary uptrend. However, the rapid rise into overbought territory (RSI >70) raises caution about near-term sustainability.

Candlestick Theory

The recent two-day bullish pattern, characterized by strong volume and a break above prior resistance levels, suggests aggressive buying pressure. Key support levels to monitor include the 50-day moving average at approximately $195.38 and the 200-day moving average at $140.14. Resistance is currently near the 201.4999 level, with a potential test of the 203.3099 high from August 18. A breakdown below the 195.38 threshold could trigger a retest of the 184.52 pivot level from August 20, which acted as a prior floor during a sharp correction.

Moving Average Theory

The 50-day moving average (50DMA) at $195.38 is above the 100-day moving average (100DMA) at $184.95, confirming a bullish crossover. The 200DMA at $140.14 remains a critical long-term support line. The current price of $205.24 sits well above both the 50DMA and 100DMA, reinforcing a strong uptrend. However, the 50DMA is now diverging from the 100DMA, indicating potential exhaustion in the short-term rally. A sustained close below the 50DMA could signal a weakening trend.

MACD & KDJ Indicators

The MACD line (12,26,9) has crossed above the signal line, reflecting positive momentum. The histogram is expanding, suggesting accelerating bullish momentum. The KDJ (Stochastic) indicator shows the stock entering overbought territory, with %K at 85 and %D at 80, hinting at a potential pullback. A bearish divergence between the K and D lines would strengthen the case for a near-term reversal.

Bollinger Bands

Price is currently near the upper band of the Bollinger Bands (20-period), indicating high volatility and overbought conditions. The bands have been widening since early August, reflecting increased market activity. A reversion toward the middle band (20-period SMA at $195.38) would align with expected mean reversion dynamics.

Volume-Price Relationship

Trading volume has surged in the last two sessions, with the most recent session’s volume (2.43 million shares) exceeding the 20-day average by ~30%. This volume surge validates the price strength but also raises the risk of a correction if buyers fail to step in at higher levels. A declining volume profile during upward moves would suggest waning conviction.

Relative Strength Index (RSI)

The RSI has spiked to 72, entering overbought territory. While this alone does not guarantee a reversal, it highlights a critical juncture. A close below the 50-level would signal a shift in momentum, while a failure to break above 80 could indicate a topping pattern.

Fibonacci Retracement

Key retracement levels from the recent low of $184.52 to the high of $205.24 include 23.6% at $199.34, 38.2% at $197.46, and 61.8% at $195.88. A breakdown below the 38.2% level would validate a deeper correction toward the 184.52 pivot.

Backtest Hypothesis

The backtest strategy leverages overbought conditions and divergence criteria, as observed in the RSI and KDJ indicators. However, the results indicate limited trade opportunities and modest returns over the 2022–2025 period, suggesting that the market’s strong upward bias has constrained the effectiveness of bearish signals. The confluence of overbought momentum indicators and a strong 50DMA bias implies that any short-term pullback may be shallow. Adjusting the strategy to incorporate tighter stop-loss levels or a short-side variant could improve risk-adjusted returns, but the current technical setup favors trend continuation until a clear bearish divergence emerges.