- Opendoor (OPEN) stock may finally be setting a bottom.
- There is technical hope for a rally soon.
- Investors need to stay tactical for macroeconomic reasons.
Opendoor (NASDAQ:OPEN) stock has been in a free fall for more than a year. But there are signs that the selling is abating. The bulls may finally be ready to establish footing to start mounting a rally. But I am realistic about the threats that the real-estate market might soon face. They are not alone, because all sectors are going through an adjustment period.
Equities markets are suffering from higher volatility levels than normal. This is primarily from the Federal Reserve fears. Members of the U.S. Federal Reserve have gone overboard with their hawkish rhetoric. Weeks ago they officially told us their plans to crimp the economy. But since then, they made countless statements about how high they want to go. They stayed stayed too loose too long thinking inflation was transitory. It turned out they were wrong, and this is their way of fixing things. The Fed has not been successful finessing the throttle with quantitative easing/quantitative tightening. Don’t take my word for it, here is billionaire Stanley Druckenmiller discussing this years ago. We have a very similar situation now, so the thoughts still apply.
When Wall Street is nervous they are quick to hit the “sell” button. This makes it hard for stocks to string together winning days. Last week ended in a bad way for the indices as a result. Yesterday, the bulls were in charge a bit, but sustainability is what is iffy tomorrow through Friday. If the whole market is struggling to find support, you can bet that it’s the case also for OPEN stock.
The problems for Opendoor actually started more than a year ago. After a 260% rally out of the gate, it proceeded to crash slowly and incessantly. As a result, it is now more than 80% below its all-time high from January 2021. The question now is how much more pain could there be before OPEN stock reaches a bottom.?
OPEN Stock May Finally Be Bottoming
Traditionally, that is more of a process than a flashpoint in time. The first step of that would be to stop the bleeding. OPEN stock is showing signs of that possibility now. The price action resembles what happened last summer. The rally that ensued then was substantial, OPEN went from $14 to $25 per share. While there is no absolute proof this will repeat, it’s a decent start.
While the bulls are holding the floor, it is okay for the price to continue making lower-highs. The two will converge slowly and the range will tighten until the energy buildup is too great. Often stocks will then burst in one direction or the other with gusto. Therefore, soon enough, Opendoor investors will find out if there’s going to be another leg lower. If so, I would expect it to fall below $5 per share. That’s not my forecast, but it’s important to acknowledge that the scenario exists.
Conversely, if the bulls prevail in this ongoing fight, then a relief pop can follow. It won’t take much to bring about a 30% rally. Management can soon give Wall Street a real reason to do that. The company will be announcing its earnings results on May 5.
Here is my sternest warning to optimistic investors today: OPEN stock is out of favor these days, as investors have very little appetite for high growth, high spend companies.
Caution Is a Must Short Term
OPEN’s 2021 performance metrics raise a big concern for me. It’s not so much that the net loss is growing — I can overlook this. But what could be an Achilles heel is its $5.7 billion burn from operations. In a rising rate cycle, borrowing to operate can be an opportunity killer. I have the same concerns for Zillow (NASDAQ:Z, NASDAQ:ZG) stock. Management may not be able to sustain the spending and growth may suffer.
Moreover, there are more technical hiccups to consider. Rallies will face heavy selling at almost every level. Its prior support zone will become a hurdle on the way up. Until OPEN stock establishes a clear ascending channel, I would take advantage of rallies. The whole world is on edge from hawkish central bankers and wars. Therefore, there are plenty of sources for negative surprise headlines.
The long-term fundamentals for OPEN stock may be fine, but the concerns are more immediate. The hawkish Fed is likely to put major obstacles in the way of the real estate markets. This would directly impact Opendoor’s opportunities to prosper. Wall Street may completely shun it if it loses its growth metric too. These are important nuances for the bulls to know, so they can have realistic expectations.
The old Wall Street adage to “not fight the tape” applies here. You shouldn’t dig your heels into OPEN if you the minority doing it. Therefore, I would not add to current risk until there is evidence of a change. Going all-in or adding to a current red position is likely a mistake.
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.