Calling the past few months challenging ones for owners of Weibo (NASDAQ:WB) stock is a considerable understatement. They’ve been miserable.
Weibo stock price has been more than cut in half since February’s high, and while a broad rout of most high-profile Chinese stocks like Alibaba Group Holding (NYSE:BABA) and Baidu (NASDAQ:BIDU) was the driving force of the selloff, that’s of little solace to owners of Weibo stock.
Some green shoots are starting to push through for many Chinese names, however. And, with solid fundamentals already (or still) in place for the company, Weibo stock looks better positioned than any of its peers to lead the recovery effort.
But there’s one huge technical hurdle ahead for WB stock that will make or break the budding rebound.
WB is often called the Twitter (NYSE:TWTR) of China, and though the characterization isn’t off-base, it’s not entirely complete. With more bells, whistles and opportunities to personalize user interfaces than Twitter, Weibo is also a great deal like Facebook (NASDAQ:FB). Arguably, Weibo is a hybrid of the Western world’s two most popular social-networking sites.
And, much like Facebook and Twitter, the young-ish platform is experiencing tremendous revenue and profit growth. Last quarter’s top line grew 48% year-over-year, to $409 million, and its user base expanded by 19%. Both figures extended long-standing uptrends that analysts believe will persist for the foreseeable future.
The upward revenue and earnings trajectory, however, have done little to prevent the decline of Weibo stock price.
Blame nervous investors.
More driven by presumption than facts at the time, investors feared that new tariffs imposed by President Trump on China would cause the country’s already-fragile economy to outright implode. It did end up running into a headwind, but it turned out to be manageable. And Weibo, whose appeal has been enhanced by its relative newness, has been able to grow regardless of China’s macro environment.
Investors’ misperceptions about China in general and Weibo stock in particular are beginning to be corrected. But WB stock needs one more good shove to kick off what should become a self-sustaining rally.
That catalyst is well within reach.
The Chart of WB Stock Price
The chart of Weibo stock, at first glance, appears to be ugly. WB stock price peaked near $140 in February, and by October, it was trading near $53.
Since then, however, subtle but important bullish clues have materialized.
One of them is the development of a horizontal support level just above $53, which has led to the first higher lows in nearly a year. That horizontal floor has also allowed Weibo stock to punch through a pair of falling resistance lines that had pushed the shares lower for at least part of the multi-month setback.
There’s one more ceiling to clear, however, before the tide turns more in favor of the WB stock price than not. That is the 100-day moving average (depicted by the purple line on the chart below), which stamped out the breakout effort that emerged in early December.
That thrust didn’t start in the best of circumstances. At the time, the stock market was poised to embark on a major correction, and China’s future was still in question. The majority of China’s most familiar stocks were far from ready to recover, leaving Weibo at a major disadvantage. Never even mind the big gap left behind by an overheated, one-day gain of Weibo stock.
Matters have changed dramatically since then, setting the stage for what could be a dramatic rebound rally of WB stock that may well lead other Chinese names out of similar funks.
One Final Word on Weibo Stock
While not overwhelmingly bearish towards WB stock, the financial advice and news industry hasn’t exactly been fond of Weibo lately. Morgan Stanley downgraded WB stock on Tuesday, and though no scathing commentaries have been penned about the company in recent weeks, few have been bullish either.
Take it all with a grain of salt. News coverage has been more reactive than proactive in recent weeks, with analysts and the media chasing trends rather than leading or causing them. To that end, if Weibo stock can just push past its technical hump, don’t be surprised to then see the headlines about it take a decidedly more optimistic tone.
That, of course, will fan any bullish flames if and when they materialize. Weibo stock just has to clear that 100-day moving average line first.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.