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Is Fastly's Massive Selloff a Buying Opportunity? - Here's the Trade

Fastly is plunging on Thursday, falling more than 25%. Here's how the stock is setting up now after the massive shakeout.

Wall Street darling Fastly  (FSLY) - Get Fastly, Inc. Class A Report was getting hammered on Thursday, down about 25% so far on the day.

At one point, shares at session lows were sporting a one-day loss of 30.9%. That figure ballooned to 37.6% when measured from the all-time high hit earlier this week.

The culprit? Guidance

The company isn’t expected to report earnings until later this month. However, Fastly updated its outlook for the third quarter, saying it now expects revenue between $70 million and $71 million, down from a prior outlook of $73.5 million to $75.5 million.

Many investors are beside themselves, wondering how a $4 million shortfall in revenue - when using the midpoint of both guidance figures - can equate to more than $3 billion in market cap being wiped away.

They have reason for such an argument. However, when a stock trades at roughly 44 times current sales estimates, any kind of shortfall is means for a decline.

Trading Fastly

Daily chart of Fastly stock.

Daily chart of Fastly stock.

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Let’s use some common sense, too. Fastly is now trading near its September 30th low from just 11 trading days ago. Shares exploded higher by 33% from that level in anticipation of strong growth.

Without that growth, the stock doesn’t deserve those gains, plain and simple. That doesn’t mean Fastly isn’t a great company — it is — but a decline is justified. All we can do now is trade it.

From here, I’d like to see Fastly stock hold up above the 50-day moving average. If it can, it puts the 23.6% retracement (measured from Thursday’s low to this week’s high) in play at $97.23.

Above that puts the $100 level and the 20-day moving average on the table. On a move above those marks and bulls can start to regain some ground, putting the 10-day moving average in play, followed by the 50% retracement near $111.

With today’s strong bounce from the open, we also have a risk level to measure against. That mark comes from Thursday’s low at $85.10. 

Should Fastly stock close below the $85 level, the technicals won't be working in its favor. That development could put range support zone in play between $73.50 and $75. A close below the September low at $71.39 and the share price could erode even more. 

For now, keep an eye on the 50-day moving average — above is good, but below keeps Thursday’s low on the table and below that could be trouble.