Volatile Blockchain Stock Sends Up Sell Signal

Overstock shares could struggle into 2019, if history is any guide

Dec 3, 2018 at 2:10 PM
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The shares of Overstock.com Inc (NASDAQ:OSTK) rallied 23.3% on Nov. 23 -- their best day of 2018 -- amid reports the company plans to focus only on blockchain. The following session, however, the security suffered its worst day in three years, before going on a four-day winning streak. Now, the volatile shares of OSTK could be flashing a sell signal, if recent history is any indicator.

Specifically, the blockchain stock is within one standard deviation of its 40-day moving average, after a lengthy stretch below this trendline. Over the past three years, there have been nine similar run-ups to this moving average, after which OSTK went on to average a one-week loss of 4.79%, and was higher just 33% of the time, per data from Schaeffer's Senior Quantitative Analyst Rocky White. One month later, the equity was down a whopping 13.08%, on average, with a positive rate of just 25%.

Overstock shares have given up almost 70% in 2018, and in early September finally broke support in the $30 area. This culminated in a new annual low of $16.38 on Nov. 20. The stock was last seen 0.4% higher to trade at $19.63; another 13.08% drop in the next month would place OSTK around $17.10.

OSTK stock chart dec 3

Amid the stock's slide -- which resembles that of bitcoin prices -- short sellers have piled on. Short interest grew 12.9% in the past two reporting periods, and now accounts for a whopping 48% of OSTK's total available float.

Meanwhile, just two analysts follow the equity, and both deem it worthy of a "strong buy" rating. In the same optimistic vein, the consensus 12-month price target stands at a lofty $93.50 -- representing a steep premium of about 375% from Overstock shares' current price. Should the equity once again back down from its 40-day moving average, downgrades, price-target cuts, or bearish analyst initiations could further weigh on the stock.

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