Investors often forget to check on the big picture before they decide on individual equity opportunities. Today, before we decide whether it’s a good time to go long FuboTV (NYSE:FUBO) stock or not, we will first frame the whole market.
The macroeconomic conditions have not changed. They still favor the bulls in a big way. Most notably because of artificial infusion of cash from the government. The first side comes from really aggressive Federal Reserve monetary policies. And on the fiscal side, the White House has already given us almost $4 trillion. They are also trying to push two more possibly soon.
The total of the bailout package has reached astronomical size. If the bulls can’t capitalize more on this big a tailwind then they are in trouble. So far, the markets are still breaking records.
Signs of Exhaustion Appear
Last week, there were signs of exhaustion. The largest companies on the planet reported incredibly strong earnings at once. The Nasdaq should have rallied in a big way but it failed. Even though there wasn’t significant downside, the lack of upside spoke volumes.
Take Amazon (NASDAQ:AMZN) for example. Management delivered one of their strongest quarters ever. The knee-jerk reaction was a huge spike to $3,668. Alas, it faded within hours and closed red Friday. This week it’s starting with even more downside. The great news is not steam enough for even a mini rally.
Although a concern, it’s not time to panic yet. The way markets rest usually can be through sideways action. Other times they have small tizzies with mini corrections.
FUBO Stock Traders Are Extreme
In this very bifurcated market, I doubt that there’s going to be any moderation. Traders these days are all in or all out modes. So if they’re not buying, chances are they will be selling quickly.
I started today by saying the economic conditions are very strong, therefore, I am not calling for an outright correction. I’m merely suggesting that the entire market could be coming into a tough period.
If I am right then FUBO stock could come under more pressure through no fault of its own. The way the stock burst onto the scene in December was monstrous. The rally was insanely aggressive as it went from $25 per share to more than $60 in under a week. Sadly for the bulls it gave it all back up just as fast. Then within a month it was back to $55 per share. Clearly, the investors in this stock are unreasonable with their expectations.
FUBO stock has been descending a bearish channel for three months. It is currently resting more than 60% below its highs and just above support. The $17.50 per share zone is clearly important to hold. My expectation is that it can, but if it doesn’t, then FUBO could revert to single digits. That is not my forecast but it’s definitely a scenario that could unfold quickly. Conviction in a turnaround should be weak, therefore averaging down here is too risky.
Unfortunately, the company is too young for its fundamentals to lend a lot of help. The business model works because it is in line with the prevailing streaming trends. The whole world is going that way and FUBO is there to capitalize on that. In our family we cut the cord a while back, and we stream everything through YouTube TV. Competition is not the problem. Alphabet (NASDAQ:GOOGL,NASDAQ:GOOG), Disney (NYSE:DIS) and Netflix (NASDAQ:NFLX) are formidable foes to FUBO but there is plenty of room for many to prosper.
Management Is on Deck
FUBO stock chart was in trouble as soon as they lost $25 per share. It triggered a bearish pattern that could still be targeting lower prices. But the bulls are doing their best to hold prior support lines. There is progress within the higher-low trend if you consider the base from last year. But it’s definitely not foolproof and investors should have stop loss levels in case they fail.
This week the company reports earnings, so management will have the opportunity to convince Wall Street to love it again.
This is a good time to remind everyone that the reaction to the earnings is all about expectations. The report card won’t matter as much as investor sentiment. Emotions are the only variable that will be in play the morning after the earnings report.
Expect a Bumpy Road for FUBO Stock
Over the long term, of course the fundamentals will matter. In the meantime, expect a potentially bumpy road. The technicals alone suggest that it may be too late to panic out of the stock as long as April’s lows hold. If they don’t, they become the trap door to another correction.
There is no moderation with this ticker so expect the unexpected. By definition, conviction from either side has to be medium at best. It doesn’t matter whether we’re right or wrong, what matters is the price action at hand.
They say price is truth and this is so important in FuboTV’s case. That’s why when I wrote about the opportunity in February I suggested moderation. I favored selling a $20 put over buying shares outright. That trade setup still has the chance of profit as it breaks even at $17 per share.
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.