Equity markets struggled a bit on the first day of trading in 2021. They showed strength in the morning but quickly faded into redness. Opendoor (NASDAQ:OPEN) held its own for a while but it too closed down 1.3%. Today we make the argument that Opendoor stock is worth owning this year.
Billionaire investor Chamath Palihapitiya brought the company public via yet another SPAC. I will label it as speculative bet just because of how young it is on Wall Street.
Unlike many of the EV SPACs, this business is already up and running with $4 billion in revenues. I am comfortable risking some money alongside of an investor like Mr. Palihapitiya. He has a good history of success so I will leverage his due diligence on the company.
Q.E. Infinity Favor Owning Stocks
Before tackling the specifics, let’s frame the macroeconomic conditions within which all stocks trade. Even though yesterday the indices faltered, the S&P actually set a new all-time high in the morning. There are challenges and we have the proverbial thousand cuts ailing investor sentiment. The virus is still spreading and countries are locking down their citizens once again. The vaccines are ready but it’s not yet available to the public.
Offsetting all of those negatives is a tremendous amount of money pouring in from governments. Specifically, the United States just unleashed another $2 trillion into its economy. Therefore equity bears are having a hard time maintaining selloffs for too long.
In addition, the U.S. Fed is 100% committed to very loose monetary economic conditions. We can even call this Q.E. ultra and into infinity. The end of this party is probably going to be difficult but it’s not imminent. Until then, investors will buy dips in Opendoor stock and others like it. Just this morning Cleveland Federal Reserve Bank President Loretta Mester reiterated the long term commitment.
Opendoor Stock Is in the Hands of the Bulls
This stock came out of the box in with a bang. The bulls rallied 150% before they corrected late December. This shouldn’t worry investors yet because of technical reasons. It is normal for rallies to fade and give back a big chunk of their upside.
Monday’s levels place OPEN near the 50% Fibonacci retracement level. This does not change the storyline as the bulls are still in charge. The swoons allow the buyers to build a better base of owners. Otherwise the stock will be in the hands of nervous investors who will quickly hit the sell button.
Furthermore, the stock is falling into support. The December rally broke out from $20 per share. It is now barely above that, so it’s likely to find footing into it. Even if that fails there are two other pivot levels at $18 and $16.
The Macroeconomic Conditions Favor Real Estate
The environment that the central banks have created favors real estate transactions. Interest rates have never been this low for this long. This is creating a lot of interest in refinancing and home purchase activities.
The pandemic has also spurred a new wave of buyers as they adapt to the new normal post Covid-19. The need for real estate services is here to stay and this plays into the hand of Opendoor.
Because the company is new, it’s almost useless to delve into its fundamental metrics too deeply. Let’s just agree to say that it’s expensive and move past it. Meaning the stock price today is almost entirely made up of future expectations. By definition this makes going long Opendoor stock a speculative bet on the team. Therefore, investors should choose the size of the risk wisely.
This is also a trade where I would not average down in case price goes against me. It’s wiser to set a hard stop to get out before extreme damage happens than try to salvage it.
For this rally to continue this stock will need the help of the overall market. Sentiment is on shaky ground and for good reason. Politicians won’t stop causing problems. There are even resurgent geopolitical risks in the Middle East. To me, it’s simple: Investors must be okay with having a few red days, especially at all-time high prices.
Instead of looking for excuses I’d prefer to look for opportunities. OPEN is one that is presenting itself for the courageous.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.
