Popular Short-Squeeze Target Newegg Tumbles. Sell NEGG Stock While You Can.

NEGG stock - Popular Short-Squeeze Target Newegg Tumbles. Sell NEGG Stock While You Can.

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Newegg (NASDAQ:NEGG) has extremely volatile shares that are causing investors a lot of skepticism. In fact, NEGG stock has tumbled nearly 13% today. That’s after having climbed up to 25% higher yesterday. So why is NEGG stock back down today? The best explanation for this wild price swing is the positioning of traders, speculators and investors who are bullish (or bearish) on the stock ahead of its upcoming earnings release.

Other credible explanations for the erratic stock price of Newegg can be attributed to a resurgence of meme stock trading and to the fact that the e-commerce company is accepting cryptocurrencies like Shiba-Inu (SHIB-USD) as a form of payment.

In March, Shiba-Inu had a strong rally that lasted quite some time so Newegg could benefit from this trend if it had accumulated a large portion of Shiba-Inu and it was quick enough to liquidate the meme coin into real and widely accepted U.S. dollars.

The history of NEGG stock’s price action supports the main argument that these wild price swings could be either a short-squeeze phenomenon or simply speculative moves that have a very short-term horizon as they tend to fade away very fast.

NEGG stock has an average volume of 1,594,934, which on March 28 surged to 39,024,100 and on March 11 declined to 143,800. A key axiom of technical analysis is that “volume is necessary to support high stock moves.” To the extent that this volume is not stable, does not have a clear pattern and mostly is not the outcome of important news, these price swings are prone to rallies and strong selloffs.

So is today’s NEGG stock selloff justified? The correct question to ask is why did yesterday’s rally occur? A stock rally on no important news is the result of a fear of missing out (FOMO) trading pattern. Booking profits today after an unjustified rally yesterday is the wise move. Avoid the stock until its earnings bring more reasons to sell or make a strong positive surprise that will reverse a large portion of its losses in 2022.

For now, the dominant trend is a downtrend.

On the date of publication, Stavros Georgiadis, CFA  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.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.


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