We’ve heard the advice. And if the buy-in question involves WiMi Hologram Cloud (NASDAQ:WIMI) stock, I’d warn against augmenting today’s reality of an overheated market and buying shares of this otherwise tantalizing up-and-comer right now. Let me explain.
If it sounds and looks too good to be true, it usually is. It’s a timeless warning. But in a market setting bullish records almost daily and once unimaginable trillion-dollar valuations easily toppled against the backdrop of the novel coronavirus pandemic, locating the next big thing is critical for some investors. And WIMI promises to keep its shareholders ahead of the game and maybe looking like early and successful stakeholders in tomorrow’s Apple (NASDAQ:AAPL) or Microsoft (NASDAQ:MSFT).
So, what are you investing in with WiMi Hologram Cloud stock? As its name implies, WIMI provides holographic, augmented reality (AR) advertising services and entertainment products using its technologies. Founded in 2015, the China-based outfit came public earlier this year for $5.50 and today sports a valuation of about $580 million.
Bothersome Growth Story
If we’re to trust the numbers at face value, WIMI also sports tantalizing profits, mid double-digit sales increases over the past year and no debt to speak of. Nothing wrong with a small-cap growth story like that, right? It’s also fair to say WiMi Hologram Cloud stock has a cutting edge, dreamy-sounding business niche that oozes of secular success for today’s investors.
More than a few of my InvestorPlace colleagues are upbeat on the company’s prospects. Key to that idea is the continued roll-out of 5G which stands to act as a major growth driver for the shares. I get it. Still, I’d be careful buying into WIMI right now.
Today’s warning against a purchase of WiMi runs deeper than worrying about other investors whose only concern is missing out on an aggressively priced market fueled by Fed money. In fear of sounding political, the restraint is also a byproduct of this year’s accounting blow-up at Luckin Coffee (OTCMKTS:LKNCY), heightened saber rattling between the U.S. and China and additional uncertainty surrounding ADRs. But that’s not all I’m nervous about either.
WiMi Hologram Cloud Stock Weekly Price Chart
Source: Charts by TradingView
Technically, the price chart of WIMI stock also gives reason to pause rather than make a buy decision today. Following a very steep corrective move, shares have bottomed after a test of the stock’s low tied to bullish 5G news announced exactly one month ago. The low also aligns itself nicely with WiMi’s IPO debut from early April. But the risk of owning shares today and facing an immediate and larger loss is growing.
A quick rally off its recent low has essentially filled a key gap from late July and acted as price resistance with a confirmed topping candlestick in place. With that stock action forming around a failed 76% support level, the observation is that WIMI’s path of least resistance looks down from here.
Likely Lower Low
For the time being, I’d expect a double-bottom pattern is going to come into play. That’s means shares should challenge an area from roughly $6.00-$7.00 before buying makes appreciably more sense on the price chart. But a weaker market environment could push WIMI significantly lower into its early July price gap. I’d even warn in a classic risk-off situation, a test of $4.25 to fill the gap is possible without much difficulty.
Bottom-line, given everything that’s been said, what we’re seeing unfold, as well as WIMI’s failure to offer investors listed options for hedging stock risk, I’d strongly warn against a stock purchase until WIMI shows definitive signs of something more investors can hang their hats on.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. Investment accounts under management do not own any securities mentioned in this article. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.