Chinese Tech Giant Nearing Historically Bearish Trendline

Analysts have left plenty of room for downgrades

Managing Editor
Jun 17, 2019 at 11:39 AM
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Shares of Chinese tech giant Momo Inc (NASDAQ:MOMO) are inching higher this afternoon, last seen up 0.2% at $31.12. The equity has had a volatile year on the charts, recently seen stuck in a series of lower highs following its early January annual low of $22.50. Longer term, MOMO has shed 41% over the past 12 months. Further downside may be in the stock's future, too, as the security nears a historically bearish trendline.

Specifically, the security has moved within one standard deviation of its 40-day moving average after a lengthy stretch below it, per data from Schaeffer's Quantitative Analyst Chris Prybal. Over the past three years there have been six other times this signal has sounded, resulting in an average one-month loss of 4.01% for Momo stock, with a mere 50% success rate. From MOMO's current perch, a downside move of this magnitude would put the stock back near $29.87. 

Daily MOMO with 40MA

Digging deeper, puts seem to be a popular entity for MOMO traders. Specifically, the equity sports a 10-day put/call volume ratio of 1.04 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the 96% annual percentile. In other terms, puts have been bought over calls at a faster-than-usual pace of late.

Echoing this, the tech name's Schaeffer's put/call open interest ratio (SOIR) of 1.76 sits in the 94th percentile of its annual range. This suggests that short-term options players have rarely been more put-heavy in the past 12 months. 

Lastly, analysts have been extremely bullish toward Momo stock. All seven covering firms sport "buy" or better ratings, while the stock's average 12-month price target comes 32% above current trading levels. This leaves the door wide open for downgrades and/or price-target cuts.

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