The tech sector has come under fire recently, but the selloff has been particularly painful for Weibo Corp (ADR) (NASDAQ:WB) stock. WB stock has dropped from over $120 to just above $100 in just a few days. Talk about a whacking!
This selloff, though, is just noise in an otherwise very strong secular growth stock. As my peer James Brumley correctly pointed out, WB stock was running into critical resistance levels at $120. The RSI indicator was also spiking into overbought territory.
Naturally, WB stock was due for a pullback.
We just had that big pullback, and WB stock is now bouncing off critical support levels around $100. The RSI indicator has also dipped into near oversold territory. Plus, the whole tech sector is bouncing back as well.
Does this mean the selloff in Weibo stock is over? Is it time to buy the dip?
Yes and yes.
Technicals Say Buy Now
WB stock went parabolic after third quarter earnings showed that the growth story for China’s Twitter Inc (NYSE:TWTR) isn’t slowing at all. After lounging in the $90 to $105 range for a few months, WB stock went from $100 to $120 in less than two weeks (Nov. 7 to Nov. 20).
That big run put the stock up against long-term resistance levels. It was trading markedly above its 50-day exponential moving average (EMA), and whenever WB stock has done that over the past year, it has pulled back.
Moreover, the big buying pushed the RSI indicator to right around overbought territory. Again, whenever Weibo stock has entered overbought territory over the past year, it has pulled back.
So WB stock has now pulled back. And it appears that the pullback is over, and a rebound is now starting.
Namely, WB stock has dipped below its 50-day EMA. Any time the stock has dipped below its 50-day EMA over the past year, the stock has rebounded in a big way. See late February 2017. Or late June 2017. Or late October 2017.
Moreover, the RSI indicator on WB stock has fallen dramatically to below 40. The RSI indicator has only been there twice before this year. Both of those dips were buying opportunities. See late June 2017 and late October 2017.
Given that WB stock has dipped below its 50-day EMA, the RSI has dipped below 40, and now the stock is rebounding, this gives me faith that this current uptrend in WB stock remains intact. If that is true, now is the perfect time to buy.
Fundamentals Say Hold for the Long Term
I’m sticking with my call that WB stock could more than double over the next five years (to see the math behind this thesis, click here).
This is a company that finds itself at the heart of the red-hot China internet growth narrative. And that growth narrative is still in its early innings.
China’s middle class is growing and urbanizing at an unprecedented rate. A critical component of this urbanization is the mass proliferation of smartphone and social media usage. That is why WB stock has taken off from under $20 at the beginning of last year to $100 today.
But the reason WB stock will head towards $200 over the next five years is that this growth story won’t slow down any time soon.
China has a lot of people. Its working class population is more than five times as large as America’s working class population (770 million versus 146 million).
That is why China’s popular social messaging apps WeChat and Weixin, owned by Tencent Holdings Ltd (OTCMKTS:TCEHY), have nearly a billion users right now.
Weibo has only 376 million monthly active users.
I don’t see any reason why as all of these consumers become more familiar with the world of social media, they won’t adopt multiple social media apps. In America, it isn’t uncommon for people to use Facebook, Inc. (NASDAQ:FB), Instagram, Twitter and Snap Inc (NYSE:SNAP).
Consequently, the pathway for Weibo to a billion users is pretty clear.
The numbers also support this thesis.
Growth isn’t slowing in any way, shape or form. Weibo added 15 million monthly users in the third quarter. Last third quarter, Weibo also added 15 million new users. The third quarter before that, Weibo added 10 million new users.
Bottom Line on WB Stock
The growth narrative for WB stock remains intact. This recent selloff was simply a technical pullback from overbought levels.
WB stock is bouncing off of critical support levels, indicative that a rebound has started. Because the fundamentals remain strong, I think it’s time to load up on WB stock.
As of this writing, Luke Lango was long WB and FB.