There’s been an unusual amount of inventory being sold at Overstock.com (NASDAQ:OSTK) in recent days. But it’s not business as usual and that’s a bad sign for Overstock stock and its bullish investors. Let me explain.
Should astute investors have smelled something fishy in Overstock stock’s price behavior the past couple months as shares continued to hit new relative lows? Quite possibly. Still, Wednesday’s news-driven stench may not be the worst of it for OSTK shares either.
Overstock sank nearly 16% towards three year lows after it was disclosed CEO Patrick Byrne has been aggressively selling shares. Specifically, a filing revealed back-to-back sales of 250,000 shares on May 13th and May 14th at $13.33 and for an average price of $12.84 on the latter transaction.
So what? Aren’t executives allowed to sell stock in order to make other purchases like buying a house, paying a child’s tuition to attend USC or other hefty bills? They are. And typically it’s done without too much scrutiny. But despite the fairly tame — for a CEO of course — net dollar value of around $6.5 million, OSTK looks different and that’s troubling. Why you ask?
Over the past couple years, OSTK has traded as a derivative play of sorts within the cryptocurrency and blockchain space. Shares of OSTK have followed those markets in lockstep courtesy of Overstock stock’s Medici Ventures tZERO blockchain platform and the company being a vocal early adapter of allowing Bitcoin payments for goods sold on Overstock.
But that strong correlation in OSTK has gone out the window the past couple months. And it raises a red flag seemingly being confirmed by Wednesday’s report.
The problem is Overstock stock’s very curious price behavior has been completely uncorrelated to Bitcoin, Etherium, Litecoin and other cryptocurrencies. In 2019, the speculative but maturing asset class has continued to rise for five straight months like a phoenix from the ashes to reclaim some of 2018’s bubble-bursting implosion. Meanwhile, OSTK shares are now sitting at three year and pre-bubble price levels.
Throw in the broader market’s own best Q1 start in decades and OSTK’s 45% decline over the past two months prior to Wednesday’s news — without too much reliance on hindsight, Overstock was already warning investors to step to the side.
Overstock Stock Weekly Chart
So, what’s next for OSTK? If I was to simply look at the weekly price chart in a vacuum, the technical inclination would be to give shares the benefit of the doubt that a punishing bearish cycle was close to completion. Specifically, an oversold stochastics set-up combined with a lower-low double bottom pattern near the aforementioned three year lows does offer contrarian-minded Overstock stock bulls potential reasons to drool. But I’d be extremely careful.
With the CEO of Overstock a longtime, wildly notorious critic of Wall Street and short sellers (who are now up to their eyeballs short at 65% of the float) consequentially giving that community ammunition with his sale of shares — I’d recommend that stepping to side still makes sense. Bottom-line though, if you are going to join the crowd in Overstock stock or take on the role of a contrarian, a limited-risk options play is the only game in town to consider.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.