Datadog Falls 3.25% Amid Bearish Engulfing Pattern and Death Cross as Two-Day Drop Reaches 3.28%

Datadog (DDOG) fell 3.25% in the most recent session, marking its second consecutive day of declines with a cumulative drop of 3.28%. The recent price action and historical data provide a comprehensive basis for technical analysis across multiple frameworks.

Candlestick Theory

Recent candlestick patterns suggest bearish momentum. The two-day decline forms a bearish engulfing pattern, with the second day’s body fully encompassing the prior session’s rally. Key support levels emerge at the recent low of $158.15 (October 10) and the prior swing low of $142.40 (September 30), while resistance clusters around $164.07 (October 9) and $165.63 (October 8). A breakdown below $158.15 may target the next support at $145.26 (September 10), whereas a rebound above $164.12 (October 8) could retest the 52-week high of $166.89 (October 10).

Moving Average Theory

Short-term trends appear bearish, with the 50-day moving average (estimated near $150–$155) likely below the 200-day average (approx. $140–$145), forming a death cross. The 100-day MA may sit between these, suggesting intermediate weakness. Price remains below all three, indicating a downtrend. A break above the 50-day MA could signal a short-term reversal, but sustained action above the 200-day MA would be required to confirm a long-term trend shift.

MACD & KDJ Indicators

The MACD histogram has contracted, reflecting waning bearish momentum, while the MACD line (likely negative) remains below the signal line, suggesting continued selling pressure. The KDJ (Stochastic) oscillator shows the RSI in oversold territory (<30), but the %K line may be failing to hold above %D, hinting at potential divergence. This confluence of bearish momentum and oversold conditions may indicate a short-term bounce, though the broader downtrend remains intact.

Bollinger Bands

Volatility has decreased, with price hovering near the lower band (approx. $155–$160), suggesting consolidation. A breakout below the band may trigger further declines, while a rebound above the midline could signal a short-term reversal. The narrow band width also implies a potential breakout in either direction, though the recent bearish bias makes a downward move more probable.

Volume-Price Relationship

Trading volume has spiked during recent declines, with the October 10 session seeing 4.06 million shares traded—a 1.2x increase from the previous day. This volume surge validates the bearish price action, as higher volume during declines strengthens the likelihood of continued selling pressure. However, diminishing volume on subsequent down days may indicate weakening bearish conviction.

Relative Strength Index (RSI)

The RSI has dipped into oversold territory (<30), historically suggesting a potential rebound. However, in a strong downtrend, RSI can remain oversold for extended periods, and this reading may instead indicate exhaustion rather than a reversal. A stochastic RSI divergence (price lows vs. oscillator lows) further complicates the signal, with the oscillator failing to confirm lower lows. Traders should await a sustained close above 30 for bullish confirmation.

Fibonacci Retracement

Key Fibonacci levels between the 52-week high ($166.89) and low ($139.63) include 23.6% at $157.00, 38.2% at $152.00, and 50% at $153.26. The current price near $158.74 suggests a potential bounce off the 23.6% retracement level, with a break below $157.00 likely targeting the 38.2% level. A sustained move above $164.07 could retest the 61.8% level at $161.00.

Backtest Hypothesis

The backtest of a strategy buying when RSI falls below 30 and exiting when it rises above 70 from 2022 to 2025 yielded a 0% return versus the benchmark’s 38.5% gain. This underperformance highlights the limitations of using RSI in isolation during trending markets. The oversold signal on October 10 (RSI <30) would have triggered a buy, but the subsequent decline suggests the indicator failed to adapt to the bearish trend. Combining RSI with moving averages or Bollinger Bands could improve reliability by filtering out false signals. For instance, a long entry could require RSI <30 and price above the 50-day MA, while exits might use RSI >70 and a break below the 200-day MA.