If it’s true that the trend is an investor’s friend, then 2 trends already well-positioned and in motion as we enter 2021 bode well for Overstock.com (NASDAQ:OSTK).
For businesses with products and services deemed essential in 2020 due to Covid-19 lockdowns, restrictions and a socially-distanced way of life, November wasn’t the best of months. A spread-out triple dose of terrific vaccine news from drug manufacturers saw Zoom Video (NASDAQ:ZM), Teladoc (NYSE:TDOC) and other stocks that enjoyed huge run-ups during the pandemic abruptly reverse course.
Massive triple digit rallies this year, which were already feeling some profit-taking and susceptible to more significant drawdowns, rightfully took their cue from the relief-felt, upbeat reports before eventually finding support within larger bases forming the last couple months.
With that perspective, deep discount online retailer Overstock certainly hasn’t been immune to shifting sentiments. OSTK stock benefitted from consumers’ increased nesting habits durig lockdown and saw shares up as much as 1,700% by early August. Fast forward to now, and shares recently challenged five-month lows as vaccine efficacy reports from Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA) made their rounds on consecutive Monday’s in the first half of November.
More importantly, there’s reasons to be upbeat about next year for OSTK stock investors. First and regardless of Covid’s status in the coming months, the consumer movement towards online shopping has been a forceful trend in motion. And it’s safe to say that’s not about to change.
Overstock’s smallish $2.68 billion market cap, profitability and competitive price-to-sales profile relative to peer Wayfair (NYSE:W), plus Wall Street’s analyst community bullishly lifting earnings estimates by 76.2% through 2021, makes for a powerful cocktail to support share prices. Furthermore, decent but not over-the-top short interest of about 14% doesn’t hurt Overstock’s prospects to rally higher either. And that’s not all
After a couple years of bubble-bursting price action, the cryptocurrency and blockchain market have made a quiet but fierce return, led by Bitcoin’s challenge of its 2017 climatic top. Could we be looking at much broader legitimization of these new technologies, similar to what occurred in the Dot.com bubble and its aftermath? If so, a new and much larger acceptance phase could bode well for Overstock which has a toehold vis-à-vis its Medici Ventures and tZERO businesses.
Overstock.com Stock Weekly Price Chart
Source: Charts by TradingView
Despite OSTK stock hitting five-month lows in November and retracing 62% of this year’s low-to-high cycle, the monthly performance in shares shows a gain in excess of 20%. The illustrated weekly price chart also reveals a bullish Fibonacci-based Gartley style pattern forming. That’s good, right?
It is, but not entirely. The problem today with buying Overstock is the lack of symmetry in the second wing if shares continue to rally from here. Ideally, a move towards $30 or $31 over the next couple months could change that. But patterns also evolve over time. And if investors get too hung up on a certain outcome and fail to react to newer, more bullish developments, that could be equally costly.
One solution which looks like an interesting way to get long on OSTK stock while minding the Gartley’s potentially unfinished business is to buy a modified stock collar on Overstock. One combination of this type that minimizes downside pattern risk for no cost would be selling the March $90 call and purchasing the March $50/$30 bear put spread for even money.
No Stocks Owned: On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any 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.