In January, Wall Street decided software was finished.
The fear was that artificial intelligence could do the work these programs do – so who would keep paying for them? In a single day, investors erased $285 billion from software stocks. It was the sector’s worst day since the depths of the Covid crash.
The damage kept coming. Salesforce fell about 30%. Some of the most trusted names in tech lost a third of their value. All told, more than a trillion dollars vanished over the following weeks.
Then Wall Street changed its mind. It turned out AI was helping these companies, not replacing them. The stocks that got dumped came roaring back.
One of the biggest winners is Datadog (DDOG). It fell by nearly half during the panic – and has since doubled off its lows.
Datadog is a digital security guard for giant corporate computer networks…
Companies like Netflix (NFLX) and Airbnb (ABNB) use thousands of different servers, databases, and code pipelines. It is impossible for human engineers to watch all of them at once.
Datadog acts as a central dashboard that monitors everything to make sure the software runs smoothly and safely.
And investors have been bidding up the stock recently – it’s up more than 109% this year.
After a recent earnings report, the stock surged to an 85 on its 14-day Relative Strength Index (RSI).
The RSI is a widely used indicator that measures overbought or oversold conditions. The higher it goes on a 0-100 scale, the more overbought the stock.
And history shows, this kind of buying frenzy is actually a great time to trade this stock.
There have been five prior times when DDOG saw an RSI above 85. Double-digit gains followed one, three, and six months later… 100% of the time.
DDOG has had even more cases of a strong move after a one-month period, with an average return of 11.3% going back to 2020.
So, if you’re looking for a way to trade the software bounce, DDOG is one for your radar.
— Michael Salvatore
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Source: TradeSmith
