The Reason Datadog Stock Could Rally Soon

The stock is jumping higher today despite a bear note

Deputy Editor
Apr 19, 2022 at 1:11 PM
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Datadog Inc (NASDAQ:DDOG) has fallen far since its Nov. 17 all-time high of $199.68. Despite a 56% year-over-year gain, the shares have taken a 9% haircut in April alone. The good news is this month's pullback has the software stock encountering  a historically bullish trendline that could be beneficial to short-term options traders, if past is precedent. 

Yesterday, DDOG came within 2% standard deviation of its 320-day moving average. Per data compiled by  Schaeffer's Senior Quantitative Analyst Rocky White, four similar occurrences of a pullback to this trendline has occurred in the past three years. White's data shows Datadog stock was higher one month after each of these signals, averaging a 12.8% pop. From its current perch, a similar move would have DDOG erasing its sharp monthly deficit.

Furthering the bullish case for DDOG could be the stock's 14-day relative strength index (RSI) of 32.3 sits just on the cusp of "oversold" territory. Some of this bounce could be in effect already; DDOG is up 5% today, despite a price-target cut from Barclays to $190.

DDOG Chart April 19

An unwinding of pessimism could help boost DDOG. According to the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.92, which ranks in the 94th percentile of its annual range, short-term options traders have rarely been more put-biased. 

Options traders are in luck, as Datadog stock's Schaeffer's Volatility Scorecard (SVS) stands at a relatively high 83 (out of a possible 100). This is a boon for premium buyers, as it indicates DDOG has exceeded options traders' volatility expectations in the last 12 months.


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