So much for that nice two-month uptrend in SoFi Technologies (NASDAQ:SOFI). What started and persisted as a well-behaved daily uptrend has become a nasty correction. Support levels have shattered while distribution days multiplied. With SOFI stock down another 4% in midday trading Tuesday, the up and down cycle is nearly complete.
In other words, prices have quickly transitioned from the bull zone above all moving averages to the bear zone beneath them.
Of course, fanboys will argue the rollover wasn’t due to any misstep by the company. After all, SOFI stock leaped higher after earnings earlier this month, signaling that the Street was pleased with the performance.
You’ll recall sellers slammed shares after August’s report. Prices cratered 21% in the three days following the event.
By contrast, SOFI stock jumped 21% in the day following this month’s release. Unfortunately, it has been a straight shot lower since. So if not displeasure over the fundamentals, to what do we owe the past three weeks of drama?
SOFI Stock and the Souring Small-Cap Sentiment
Small-caps are to blame. Or, more specifically, investors’ sudden but now sticky souring toward the little guys. The Russell 2000 Index, which tracks small-caps, has declined nearly every day of the past three weeks. With Tuesday’s 4% drubbing, we’ve now fallen over 11% from the peak bringing us officially into correction territory. This is the most significant drawdown of the year.
Despite being larger than most companies under the small-cap label, SoFi Technologies is still an infant in the public markets. It just reached its one-year birthday as a public company. Like many recently released IPOs, SOFI remains a more speculative and volatile stock. Its risk profile better mirrors a small-cap than the titans of industry that dominate larger indexes like the S&P 500.
As such, its share price moves in sympathy with the Russell 2000.
If the weak nature of small-caps heading into Thanksgiving wasn’t enough to justify caution, the Omicron variant just sent market anxiety through the roof. Naturally stocks that fall into the riskier categories of the market are the most sensitive when investors start de-risking portfolios.
Let’s take a closer look at the price chart for SOFI stock to map out the trends and price levels worth watching into year-end.
Examine SoFi Technologies Stock Charts
Despite the bearish slant of my commentary thus far, I do think there’s room for optimism in SoFi’s chart. For starters, this is a movie we’ve seen before. The last two times prices fell into a downtrend, support ultimately halted the decline in the $14 to $16 zone. We’re fast approaching these levels again, and buyers could undoubtedly come out of the woodwork.
The ultimate question is whether you want to bottom fish here or wait for signs that a new uptrend is emerging. At a minimum, prices need to push above the high of the past four trading sessions ($18.69) to signal a bounce is beginning.
I do like how SOFI stock is holding its previous pivot low so far today. The rest of the market is crumbling to a lower low, so SOFI is showing some relative strength.
My Favorite Trade
One of the redeeming qualities of SoFi’s volatile trading range over the past year is the juicy options premiums. Strategies like covered calls and naked puts offer nice paydays if you’re willing to wager the aforementioned support area ($14 to $16) holds. Given the sketchy nature of the market right now, I prefer selling far OTM puts to buying shares outright.
The Trade: Sell the Jan $12.50 naked put for 30 cents.
If you want to increase the payout, you could use the Jan $15 puts instead.
On the date of publication, Tyler Craig 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.
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