- Sofi Technologies (SOFI) snapped back on Wednesday, paring the losses from Tuesday’s wicked post-earnings plunge.
- The rare bout of strength has bulls hoping the struggling fintech stock has found a bottom.
- Unfortunately, the market mood and technical deterioration disagree. Wait for more evidence before buying Sofi.
Sofi Technologies (NASDAQ:SOFI) saw a rare bout of strength on Wednesday. While the Nasdaq tumbled 3% to a new bear market low, Sofi stock jumped 4.6%, with over 76 million shares changing hands. What’s more, it closed near the high of the session, even as the rest of the market cratered into the bell. The gains come as a welcome reprieve after prices slipped as much as 19% following Tuesday’s release of its latest quarterly numbers.
Buying Sofi stock here is fraught with the same danger as acquiring it at any time over the past six months. You’re buying a downtrend without evidence that a bottom is in place. From a technical analysis perspective, it’s no more likely to reverse here than before. As for the obvious argument that it’s cheaper than before — I certainly agree. The problem is that it can get far cheaper before all is said and done. If there’s one thing the ongoing massacre in special-purpose acquisition companies (SPACs), IPOs, unprofitable tech and growth stocks have taught us, it’s that the liquidation can continue for longer than expected.
Two Choices for Sofi Stock Buyers
As I see it, would-be buyers have two choices. Buy now, hoping that we’re at or near a low point, or wait for more definitive signs that the trend is turning. The first option offers a better price but less confirmation. Additionally, it’s a path that has resulted in pain for all who’ve followed it this year. The second choice may require purchasing at a worse (i.e., higher) price but at least offers confirmation that the trend has indeed turned and the wind is at your back.
I’m a fan of the latter approach, as outlined previously. It’s the more patient route, and in 2022 patience has been rewarded. Just ask the legion of investors who snatched up shares in any number of growth stocks because they were 50% off their highs. Most fell further, and waiting would have been the more profitable path. There’s no evidence yet that this has changed.
The SOFI stock price is trending lower across all time frames. Every moving average is cruising lower, and there’s a mountain of overhead resistance and an army of underwater longs desperate to exit at less of a loss. The post-earnings plunge pushed prices to an all-time low, signaling an increase in momentum for the downtrend.
Here’s What to Wait For
It doesn’t mean prices can’t bounce. Heaven knows the entire market is desperately oversold and due for a snapback. But rallying for a few days is entirely different than reversing the trend. Sofi needs to carve out some type of bottoming pattern before buying makes sense for someone with a longer time horizon. It could come as a double bottom, an inverted head and shoulders, or simply a V-shaped runup.
Breaking resistance confirms all three, so that’s the “bat signal” worth watching for. The old pivot high at $7.20 is the first level that needs to be cleared. Doing so would suggest the short-term trend is turning higher. The bigger, more significant development for me would be taking out the 50-day moving average. It has held firm all year long as resistance, and finally piercing it would mean a more substantial turnaround is afoot.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.