The pandemic gave all retail companies a giant boost. So much so that they not only quickly recovered from the Covid-19 crash but eclipsed it. Jumia (NYSE:JMIA) stock rallied as much as 3,100% off the March 2020 bottom. Losing a few ticks is more than necessary. Nothing rallies to the moon without rest, therefore the recent dip is an opportunity.
Chasing the herd is rarely fruitful. Those who are selling JMIA stock on this weakness are panicking. The time to sell it was when it lost $32 per share. That was an important ledge that the bulls failed to hold. It will stand as resistance until the next rally back to it. The battle there will be fierce but the time to prep for it is now.
Fundamentally, the business opportunity for Jumia has not changed in the last few months. However, the exuberance that started last year went too far. Therefore, the fall from grace was hard on those who chased it late.
The fundamental metrics are healthy. While it is not yet profitable, its price-to-sales is only 12. The owners of the stock now are realistic with their expectations. Disappointing them from here is not a likely scenario. The more realistic setup is that they are strong hands holding shares.
Jumia stock is down on its luck, and the hardship has taken its toll on the bulls. But there could be relief coming from the technicals on the charts.
The stock has fallen into a pivotal zone that dates back almost a year. It marked a very harsh top last August. Then the bulls used it for a breakout in November. Most recently in May the fans defended it and confirmed support below.
Signs of Relative Strength
Yesterday when markets fell 2%, JMIA stock was up 1.2%. That’s further proof that it has already shed all the fat. The assumption is that the zone near $20 per share will hold again. Owning shares into it makes sense. However, since the stock markets are precariously high, I would suggest still using caution.
Taking full size trades is reckless at these altitudes. The macroeconomic conditions are very unique. There are no experts and we shouldn’t pretend to be that. Regardless of how strong my conviction is in this particular opportunity, I should exercise caution. All stocks have to trade within the collective of the market. If inflation continues to heat up, I expect weakness in the indices to persist. Jumia stock could not then rally alone.
Support levels are not bulletproof. In this case, I would prefer to use the options where I can build a buffer. Buying shares outright leaves no room for error. Selling puts below instead accomplishes a bullish position with room to spare.
Honest Opinions on JMIA Stock
I am not a perma-bull on JMIA. In fact, last December I noted the rally off the $20 line. I also suggested to wait out for a dip, the stock fell 30% within days. Clearly, I have no problems straying true to the price action.
The idea is for investors to know their trading speed. Those who can, have the opportunity to actively trade this ticker. The rest can simply buy the dips for the long haul.
Conversely, on March 8, when it was falling fast I wrote about going long. Today’s opportunity is similar to last March if not for the indices being this high still.
Fundamentally, Junia is trying to build the business in a budding area of the world. This is not usually easy work, but they are on the right track. The fact that the stock has out-performed Amazon (NASDAQ:AMZN) and Shopify (NYSE:SHOP) is impressive. Patience will be a virtue for investors in it. Panicking after big dips or chasing rips too late are the biggest risks to the masses. With a bit of chart homework and simple logic, investors can avoid those pitfalls.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.