They say if life serves you lemons, make lemonade. But when it comes to the stock market and Lemonade (NYSE:LMND), trying to squeeze bullish profits out of today’s LMND stock has souring prospects off and on the price chart. Let me explain.
Lemonade. It’s a new kind of fintech. Well, that’s what they tell us. What we can say with a bit more authority is the machine-learning based P&C insurer with its app-based cache and catchy, “Instant everything. No brainer prices. Big heart” has been a wildly volatile battleground stock.
Since bursting onto the scene last July as an IPO priced at $29 a share, bulls and bears have done a terrific job of squeezing one another. After debuting on the NYSE at $50.06 LMND shares hit a high of $96.51 in its second day of trade. But the sure-footed victory for shareholders didn’t last.
Ups and Downs of LMND Stock
Lemonade struck a numbing all-time-low of $44.11 just two months later in early September.
Yet the bitter-looking position also then worked its way into an all-time-high of $188.30 just four months later by early January. Bulls, bears but not pigs, right? Yup. And to maintain that trend, conditions soured greatly from there.
LMND’s short interest, which today stands near 30%, helped sink shares by nearly 70% to a low of $58.83 over the next four months. The bearish cycle culminated in a post-earnings sell-off of nearly 19%.
Then, and maybe not surprising given its volatile history, investors learned to make LMND stock rebound smartly from their initial reaction to a lemon of an earnings report featuring a larger-than-forecast loss. More appreciably than a delayed “buy the news” change of heart and cause for greater care, it appears much of this past month’s 85% rally may have Redditors to thank.
Lemonade’s Stock Weekly Price Chart
Source: Charts by TradingView
It is what it is. And today LMND is a battleground stock likely closer to having run its course for bulls in the short term. That’s particularly true if the meme-based crowd responsible for trades in GameStop (NYSE:GME) or AMC (NYSE:AMC) and other heavily shorted stocks this year, are the driving force behind Lemonade’s rally.
To be fair, there’s nothing wrong with what Redditors do. On some levels Wall Street is guilty of the same kind of group activity. It simply manufactures what it does behind fancier credentials and doorways that give a more austere appearance. There is one difference though. Redditors don’t just slap a buy recommendation on a stock.
Collectively, Reddit isn’t known for its commitment. They’re short-term investors and many are simply day traders. And quite simply that means when mojo leaves LMND stock, those that continue to hold shares should brace for a significant drawdown. If history merely rhymes, a case of simple profit-taking will turn into a much uglier correction.
Million-Dollar Question on LMND Stock
So, has LMND stock already topped or will bulls press their initiative towards the 50% level and year-to-date marker? It’s the million-dollar question. And while I don’t have the answer, don’t say you haven’t been warned.
Bottom line, with a larger rally in hand, an overbought stochastics and Lemonade testing overhead 38% resistance today, in our estimation a squeezing of bulls who overstay their welcome is appreciably nearby.
Moreover and without question, if you’ve got a million-dollar LMND stock position or something considerably smaller but meaningful to your account, a fully-hedged stock collar around those gains should go a long ways towards keeping you removed from the downside of a Reddit play.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.