Stock investors who stuck with Opendoor (NASDAQ:OPEN) are most likely suffering losses. This is especially true of those who chased it in February. OPEN stock is now 64% lower from the high, and seemingly a falling machete. It has not yet found support or signs of stabilization. The next ray of hope that the bulls have may be in its chart.
This precipitous fall brought it back to its summer-levels that were the base for an 80% rally. However, trader sentiment on Wall Street soured last week. Therefore, we may lack the risk appetite that bought the dip back then. It is reasonable enough to anticipate that the bulls are there because that’s about where they also bounced from the correction last May. Now they could do it again, but with tight stops.
Trade OPEN Stock UP
OPEN stock came to market last year and exploded into a 250% rally. We know that Wall Street can overshoot with exuberance and then almost inevitably, they go too far the other way. Then they repeat the process until they settle into a grove. OPEN stock is not showing any signs of that happening yet. It remains a momentum stock that requires investors to be cautious. The better bet on it from here is UP with a few details.
If you believe the experts, the real estate market has never been hotter. Interest rates are near-zero to help facilitate the liquidity. However, last month the Federal Reserve (Fed) started reducing its quantitative easing (QE) programs. Part of that will eventually involve them raising the overnight rates next year. I doubt that they plan on making it an aggressive course, but it’s safe to say that the bottom is in for rates.
While the Fed does not control mortgage rates, they do have influence on them. Ideally, investors want to look for quality stocks that have fallen into support. OPEN’s model shows promise, but it’s too young on Wall Street to have earned enough kudos.
Even though supports looks solid on the charts, I am a bit skeptical. I’ve written bullishly about it twice already, but with mixed feelings both times. They delivered big upside, but those who didn’t book the profits may now be sitting on losses. Therefore, I reiterate that today’s opportunity is a speculative trade. The “speculative” part suggests smaller size risk and the “trade” part suggests to book profits relatively early. Even if the intention is to own it for the long term, some trimming makes sense.
Trust in Chamath
If you believe billionaire investor Chamath Palihapitiya, OPEN is “the largest online consumer real estate business in the United States.” And he’s invested big money into it, so I trust him enough to bet a little along side him. This could be a phenomenal trade opportunity, but with a stop loss in place. Losing the current lows could trigger a much bigger bearish pattern lower.
The upside targets for from here would be near $18 per share. That’s where there will be sellers and the stock could stall on the rebound. It is important in this environment to book profits often and sooner than normal. This is especially true for stocks that move as fast as this one.
From an investment perspective, I would insist on a deeper dive into the company’s prospects. And even then, we would need patience and the ability to withstand the risk of the rate-hike cycle slowing real-estate down.
If you twist my arm, I would trade it on the bullish side into January 2022. But as for an investment, I feel more comfortable allocating risk to companies with better profit and loss statements. This is not a knock against Opendoor. I just need better fundamentals for this jittery market.
When Wall Street is on edge, they shy away from risky stocks. This is evident from how they handled the small cap sector. The Russell 2000 index lost 13% in a month. That’s an official correction and on its way to a recession in Wall Street terms. During tough times, I find it best to favor quality stocks with current strong fundamentals not future successes.
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.