Companies that offer products and services to fend off cybersecurity threats are more important now than ever before. On Tuesday, President Joe Biden reaffirmed the role of cyber threats and the negative impact that these attacks can have against geopolitical stability. He warned that if the U.S. ends up “in a real shooting war” it could be the result of a cyber breach of great consequence. As investors, the importance of having adequate exposure to cybersecurity companies is one that cannot be ignored. In this article, we’ll analyze charts from across the industry and try to determine how active traders will be looking to position themselves over the weeks and months ahead.
- Comments by President Joe Biden on Tuesday reaffirmed the importance of cybersecurity companies in today’s economy.
- Bullish chart patterns across the cybersecurity industry suggest that prices could be poised to move higher over the weeks ahead.
ETFMG Prime Cyber Security ETF (HACK)
The most common asset utilized by traders when seeking to gain exposure to the cybersecurity industry is the ETFMG Prime Cyber Security ETF (HACK). Fundamentally, the ETF comprises 62 holdings and carries an expense ratio of 0.60%. Looking at the chart below, you can see that the converging trendlines are creating a well-defined ascending triangle pattern. This common continuation pattern is utilized by traders when determining the placement of buy and stop orders. A breakout above the horizontal trendline, such as the one highlighted on the chart, suggests that the bulls are in control of the momentum and that the price of the fund could be headed higher. Medium-term targets will most likely be placed near $81, which is equal to the entry point plus the height of the pattern. From a risk-management perspective, stop-loss orders will most likely be placed below the 50-day moving average (blue line), or the 200-day moving average (red line) depending on risk tolerance.
Cloudflare, Inc. (NET)
As one of the top holdings of the HACK ETF, Cloudflare, Inc. (NET) will likely be the focus of technical traders over the weeks ahead. Based on the chart, traders will notice how the price has recently moved above a key level of short-term resistance and how there appears to be no major barrier standing in the way of a run higher. The nearby levels of support shown by the dotted trendlines and colored moving averages provide traders with clear levels for placing stop-loss orders depending on risk tolerance and investment outlook.
Fortinet, Inc. (FTNT)
As another one of the top holdings of the HACK ETF and with a market cap of approximately $45 billion, Fortinet, Inc. (FTNT) is one of the cybersecurity stocks that cannot be overlooked. Strong second quarter earnings showed a 30% year-over-year increase in total revenue to $801.1 million. Billings of $960.9 million were up 35% year over year. Looking at the chart, you can see that the stock price has been trading within a confined range for many months and looks well poised to move higher over the months ahead. To effectively manage risk, followers of technical analysis will likely use one of the trendlines or moving averages when determining the placement of stop-loss orders.
Palo Alto Networks, Inc. (PANW)
Another well-known and widely followed cybersecurity company that happens to be trading within an ascending triangle pattern is Palo Alto Networks, Inc. (PANW). Based on the proximity to the upper bound of the pattern, this chart will likely be near the top of traders’ watchlists for the next several weeks. Based on the tenets of technical analysis, a strong move above the psychological $400 level could easily be the catalyst that is needed to start the next leg of a major move higher. It should be said that some traders may choose to buy near current levels in anticipation of a move higher, but this type of trade carries a higher level of risk than waiting for confirmation of a breakout.
A continuation pattern suggests that the price will continue to move in the same direction after a continuation pattern completes as it did prior. There are several continuation patterns that technical analysts use to signal that the price may continue to trend. Examples of continuation patterns include triangles, flags, pennants, and rectangles.
The Bottom Line
Cybersecurity companies are playing a critical role in today’s economy and as such deserve a spot in investment portfolios. For active traders, the chart patterns discussed above combined with nearby levels of support suggest prices are well positioned to move higher over the next several months.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.