Software stock Datadog (DDOG) recently broke out of a weekly flag pattern after quickly dipping below — and then regaining — its 20-week moving average, notes Matthew Timpane, technical expert and editor at Schaeffer's Investment Research.

This trendline was strong support during the broad-market selloff in September and could prove to be a springboard once again in 2021. With year-over-year revenue growth at roughly 62.5% and the company free cash flow positive already, there is reason to believe Datadog stock has room to run.

Digging deeper into a 2021 outlook for Datadog, the company’s management team raised guidance by 5% during its third-quarter earnings report, ahead of the release of Wall Street's expectations, which we can likely see as a theme in 2021.

The lowered 2021 growth outlook is largely from expectations that budgets will be conservative for customers' IT spend. Still, as we move out of pandemic mode, we can expect budgets to open up, allowing DDOG to beat earnings expectations and raise guidance consistently.


A short squeeze could keep the wind at DDOG's back. The stock continued to rise in the face of short interest increasing toward all-time high levels.

A healthy 7.8% of DDOG's total available float is sold short, and at the stock's average pace of trading, it would take more than three days for shorts to buy back their bearish bets. A shift in analyst sentiment is overdue as well. Of the 18 brokerages covering DDOG, 11 maintain a tepid "hold" stance.

Meanwhile, DDOG premium is affordably priced, which could draw more buyers to the table. This is according to the security's SVI of 52%, which sits in the lowest annual percentile, which means options traders are pricing in relatively low volatility expectations at the moment.

Plus, the equity's Schaeffer's Volatility Scorecard (SVS) sits at 84 (out of 100), meaning the stock has greatly exceeded option traders' volatility expectations during the past year.

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