Datadog DDOG Falls 1.80% as Bearish Exhaustion and Overbought RSI Signal Potential Downtrend

Datadog (DDOG) fell 1.80% in the most recent session, closing at $154.52 after trading between $152.50 and $156.58. The stock has exhibited a volatile pattern over the past year, with significant intraday swings and mixed momentum signals. Below is a technical analysis integrating multiple frameworks to assess short-term and long-term implications.

Candlestick Theory

Recent price action suggests bearish exhaustion, with a long upper shadow on the October 7 session indicating rejection at $156.58. Key support levels are forming near $152.50 (recent low) and $142.40 (September 30 low), while resistance is clustered at $159.68 (October 6 high) and $161.19 (December 9 high). A potential bearish engulfing pattern may be developing as the October 6 bullish candle is being consumed by the October 7 bearish candle.

Moving Average Theory

Short-term momentum remains bearish, with the 50-day MA ($140.23) below the 200-day MA ($138.65), suggesting a downtrend. The 100-day MA ($142.16) aligns with the 200-day as a potential support floor. However, the 200-day MA’s upward slope indicates a possible long-term base near $140-145, creating a confluence with Fibonacci retracement levels discussed below.

MACD & KDJ Indicators

The MACD histogram has contracted from +1.5 to +0.3 in recent sessions, signaling weakening bullish momentum. The KDJ stochastic oscillator shows %K crossing below %D at 23.4 and 28.1, respectively, indicating oversold conditions. However, the RSI (67.48) remains below overbought (70), creating a divergence between KDJ and RSI that may delay a reversal.

Bollinger Bands

Volatility has expanded, with the bands widening from $142-148 to $152-160. The current price of $154.52 is near the upper band, suggesting overbought conditions despite the RSI reading. This discrepancy highlights a potential short-term overextension, though the 20-day volatility (ATR: $5.23) supports the likelihood of a pullback to the mid-band ($155.52).

Volume-Price Relationship

Volume has spiked on recent down sessions, with October 7’s 3.38 million shares traded—30% higher than the 10-day average. This confirms bearish conviction, as declining prices coincide with expanding volume. However, the lack of follow-through selling below $152.50 raises questions about the sustainability of the downtrend.

Relative Strength Index (RSI)

The 14-day RSI stands at 67.48, approaching overbought territory but not yet triggering a warning. Historical data shows the RSI peaked at 71.2 in April 2025 before a 10% correction, suggesting a potential trigger for caution if the index closes above 70. The average gain (4.12) outpaces the average loss (3.05) over the last 14 days, but the ratio is narrowing.

Fibonacci Retracement

Key retracement levels from the 2024 high ($170.08) to the 2023 low ($73.84) include 61.8% at $138.86 and 50% at $121.96. The current price of $154.52 aligns with the 38.2% retracement level ($152.30), suggesting a potential consolidation zone. A break below $142.40 (23.6% level) could accelerate the downtrend toward $138.86.

Backtest Hypothesis

The proposed strategy involves selling DDOG when RSI exceeds 70 and a MACD Death Cross occurs. Applying this to historical data from 2022-2025:

1. RSI Overbought Threshold: The RSI exceeded 70 only twice (April 2025 at 71.2 and March 2024 at 70.5).

2. MACD Death Cross: No clear Death Cross occurred during these periods, as the MACD line remained above the signal line.

3. Execution: Despite the RSI signals, the lack of a Death Cross prevented the strategy from triggering. However, if applied, the April 2025 sell signal would have captured a 10% decline by May.

The strategy’s effectiveness is constrained by the rarity of both conditions aligning. A modified approach combining RSI overbought with a bearish KDJ crossover (e.g., %K < %D at 23/28) might improve success rates, though further testing on daily data is required.