Lemonade (NYSE:LMND) has enjoyed a nice squeeze off its lows. The question for investors is whether today offers a better time to buy, sell or simply hold off on Lemonade stock? Let’s look at what’s happening off and on the price chart, then offer a risk-adjusted determination aligned with those findings.
It’s been an interesting year to say the least. Wall and Main Street have been challenged by the coronavirus pandemic, an impeachment, unrest tied to the Black Lives Matter (BLM) movement and a contentious Presidential election. I’m sure there’s more to come. Oh yeah, and there’s still nearly two months remaining on the calendar.
Against that background investors have witnessed a history-making bear market, as well as a record-breaking rally where even a blue-chip investment like Apple (NASDAQ:AAPL), the world’s most valuable stock, has been both bearishly unhinged and bullishly uncontained. Yet amid this unpredictable investing climate, Lemonade has been making a name for itself with both bears and bulls.
Since bursting onto the scene in July with its $29 initial public offering, fintech Lemonade has become synonymous with volatility. The millennial-focused P&C insurer with its app-based cache and catchy, “Instant everything. No brainer prices. Big heart,” promise has been wildly popular with younger investors who see the smaller mid-cap as a disruptor in a historically staid industry.
Lemonade’s pitch sounds good, right? It has for many investors, at least at times. In July LMND stock did soar out the gate by more than 300% above its IPO price in less than two sessions. But for many shareholders eyeing the next big thing and hoping for a longer-term stock trajectory similar to Apple, there’s already been some difficult-to-swallow lessons along the way.
LMND’s Performance in October
Over the course of two months and into the end of August, Lemonade shares managed to hit a new low as a publicly-traded company as shares peeled off 55% from their all-time high. And in October, the stock may have induced additional indigestion as it dropped 35% in less than two weeks.
Blame it on what you will. There is the broader market of course. And October’s second half did provide a good old-fashioned seasonal scare on Wall Street. Rightfully, it’s easy to point fingers that way given the corrective sell-off. But that’s not the only reason for Lemonade’s bearish volatility.
The thing is, Lemonade stock, and not unlike many great investments before it, has its share of flawed fundamentals. Think Netflix (NASDAQ:NFLX) or Amazon (NASDAQ:AMZN) in days past as both built their empires.
In a nutshell, there’s oodles of red ink associated with Lemonade stock and iffy fundamentals as the company attempts to move the needle. Given today’s well-questioned fundamentals versus future growth potential, it should come as little surprise Lemonade is also a volatile battleground stock.
Currently, LMND shares maintain short interest of 16%. It’s a decent chunk of naysayers. And unavoidably, more enthusiastic, sour-minded investors will test the mettle of Lemonade’s more upbeat shareholders.
Lemonade Stock Weekly Price Chart
Source: Charts by TradingView
In another week shareholders and Lemonade stock’s bearish population will gain a bit more insight into the company’s business and at a minimum, near-term prospects as it reports earnings. But if we’re to believe in a chart’s ability to predict future prices, there’s a lot to like about the shares already.
After hitting new lows in early September Lemonade rallied strongly and managed to break above its weekly downtrend line. The price action was a first indication of a technical change in character for the better. Despite losses to follow, conditions have actually improved.
October’s broader market correction resulted in Lemonade stock forming a bullish higher-low doji-hammer candlestick which found support off the former resistance line. It’s bullish and reinforces the initial breakout as it points towards an emerging uptrend. Having said that, I wouldn’t be a buyer of LMND today.
At the moment shares are modestly extended above the pattern buy following Tuesday’s volatile gains. I’d wait to make a purchase on weakness if Lemonade pulls back towards $53 – $55 in the next few sessions.
Bottom-line, with obviously challenging fundamentals and earnings in the near future, an outright stock purchase is riskier than otherwise. If that technical opportunity to buy on weakness does arrive, I’d suggest ‘underwriting’ any buy decisions with a married put or collar strategy.
On the date of publication, Chris Tyler did not hold, directly or indirectly, positions in any of the securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. 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.