Technical Analysis and Market Entry: Overstock.com (OSTK) – Buying Opportunity

  • The Overstock.com (OSTK) price has reversed all of its 2019 bull run seen at the start of the year.
  • The stock has returned to a large known buying area, with signs of a change in trend to indicate some renewed upside.

Overstock.com shares have been stuck within a stubborn trend to the south since March. Over the last eight weeks, the stock has closed in the red seven of those, and is currently running at a fourth consecutive week with losses. It came after the bulls ran out of momentum in March, producing an evening star weekly candle. Technically, as proven with the sell-off, such a formation tends to indicate an end to the current trend.

The company had initially staged a strong rebound at the start of 2019 after taking a beating late 2018. Overstock.com rallied around 80% from $13 up to the high print $23 in March, which at the time was the highest it had been since October 2018.

The supply area runs from the $21-$23 price range, which has proven to attract the bears. It caused some issues in October and November 2018, when the buyers were attempting to regain control. The stock has seen a full reversal of the late 2018-2019 recovery, now trading back to the pre-bull run territory.

Big Buying Area

Overstock.com weekly chart.

As detailed above, Overstock.com has made a return to the low area produced in December 2018. The territory runs from the $13-$12 range, which has historically proven on occasions to attract some buying interest. In terms of the most recent times it has provided necessary comfort, December 2018, May 2017 and October 2016 come to mind. The price has not traded below this zone since February 2016, a reliable area for support. Given the length and significance of acting service, a break and closure below could be catastrophic.

Reversal Confluences

Aside from the fact that Overstock.com is trading within the buying territory, the latest weekly candlestick closure is strongly indicating a reversal. A morning star formation can be observed on the current week candle. Typically, these tend to signal the end of a downward trend, which as earlier mentioned has been seen since March. The respective morning star follows the evening star, which was produced to trigger the current bearish trend.

Earnings Report – Thursday 9th May

Overstock.com is set to release its earnings data before the market opens on Thursday, May 9th. Market analyst expectations are for Overstock.com to report a loss of $0.75 per share for the quarter. Revenues are expected to be $360.91 million, down 19% from the year-ago quarter. These numbers would be harmful to the share price; however, there is room for potential upside surprises versus the expectations.

Trade Recommendation

Buy entries from the current price area are attractive within the noted demand zone of $13-$12. An initial upside target should be placed at $22, the high area of 2019 so far. Furthermore, eyes should be on $28, as OSTK last traded up at these heights in October 2018. Lastly, stops should placed just below the noted demand zone, leaving enough breathing room at $11.

Featured image courtesy of Shutterstock.

Author:
Ken has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.