Investors are having an uncertainty stent on Wall Street. The Federal Reserve is ending its quantitative easing, and investors are running wild with the possibilities that come from it. The tapering process was on track to end near the summer. However, they are likely to drastically accelerate it. So for now investors are selling equities as if we are going into a recession. The small-cap sector is taking it on the chin harder than the major indices. Robinhood (NASDAQ:HOOD) stock is in that group and it is miles off of its hay day highs.
After a strong second week, it tumbled from $85 per share continuously into the current new lows.
From high to yesterday’s low, HOOD stock was down 83%. We cannot be certain this is a bottom even at these levels. This is an extremely controversial stock, maybe perhaps because of the posse it served in the beginning.
Out of the pandemic, we saw a new breed of traders using the Robinhood platform. Those profits have vanished in the last few months as the Russell 2000 crashed from its highs. With it Robinhood’s stock came down hard. Now it cannot find its footing.
How the Bottom in HOOD Stock Unfolds
The first step in establishing a tradable low is to stop making new lows. There has been no evidence of that, so investors should not expect one this week. The second step of a bottom involves seeing progressively higher-lows. That also has not been the case for longer than a few days at a time.
I call such a scenario upticks mode where bulls cannot trust upticks in the stock. The bears trap more hopeful investors by selling rips.
Robinhood still has a substantially large membership, their profit and loss statement is too young to lend any stock support. Total revenues fell dramatically in the third quarter of 2021. This is a concern, because if that happens again, the selling will continue. Incidentally, that day is coming soon and investors must protect themselves over the headline. If the news on revenue trends is overly disappointing, HOOD stock could go into the single digits.
I hope this isn’t the case for the sake of investors, but hope is not a strategy. If I’m holding shares, I would want to make my position bulletproof just in case the disaster strikes.
People spend money to ensure cars, houses and health but they find it difficult to do the same for equities. An asset is an asset and if there is risk to it, I should protect it just in case. Losing money on protection is not really losing, because the alternative would mean suffering an accident.
Legitimacy Perception May Be an Issue
The Robinhood platform carries a certain stigma, but it shouldn’t. It is a legitimate venue for trading for any level trader, even crypto. There are many styles and personalities in the game, so there should be room for this one to prosper. It is important that management supports the stock by telling a good story. They are trying with strategic moves to improve the offering.
It’s not all about the figures in the sales. But the reaction can come from what management says about the future. What Wall Street wants to hear is that they are coming into their own. Management also needs to lay out the path forward into a better prosperity. Nobody wants to invest in a stock that has dwindling growth trends, especially a young company like this.
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.
