How Will Traders React to Beyond Meat Stock's Technical Break?

Beyond Meat shares ended last week with a four-session losing streak

by Bernie Schaeffer

Published on Jun 25, 2019 at 7:09 AM
Updated on Jun 25, 2019 at 7:09 AM

With each day that passes, it seems to grow more difficult to ignore the growing cult of Beyond Meat Inc (NASDAQ:BYND). The vegan burger stock shocked Wall Street when it ballooned from its early May initial public offering (IPO) price of $25 per share to an intraday high north of $200 per share in just under seven weeks, with BYND's "eight-bagger" breakout effectively breathing new life into the tired old concept of the "momentum stock." Now, as of this writing, Beyond Meat boasts a market capitalization of $9.26 billion -- just a stone's throw from Domino's Pizza (DPZ), at $11.52 billion, and not far from Campbell's Soup (CPB), at $12.25 billion.

So while the S&P 500 Index (SPX) is humming along quite respectably in the month of June, with its advance of 7.2% for the period to date, it's safe to say that BYND is fairly crushing the broad market with its month-to-date surge of nearly 48%. That's quite a robust buy-in for a company that's in the business of "finding plant-based equivalents and assembling them in the architecture of meat," per its own website.

But right away, allow us to clarify one point: Our purpose here is not to argue that BYND is "undeserving" of any share-price gains it has garnered so far. As written in this space on the topic of Lyft (LYFT) just about a month ago, "a useful, tradable sentiment backdrop takes time to develop. Trying to 'fade' the consensus sentiment on a new-to-Wall Street stock is a strategy that's notoriously easy to fumble, because there's so little history to draw from -- in terms of both price action and what counts as a 'normal' degree of euphoria or despair for a given stock." With exactly 36 days of trading history under the stock's belt, we'd say this observation applies broadly to BYND.

But thus far, despite those outsized share-price gains, enthusiasm for BYND stock seems to be in relatively short supply -- perhaps as the very magnitude of its post-IPO rally appears to have struck fear in the hearts of gun-shy traders. Starting with outright bets on the stock's imminent decline, short interest on Beyond Meat has ramped up alongside the share price to this point, and now accounts for 9.63% of the equity's float.

Similarly, options traders have shown a greater affinity for puts than calls. Without much in the way of historical context to guide us -- BYND options made their debut as recently as May 8 -- we can simply observe that total open interest for the stock consists of 245,314 puts and 155,265 calls (per Trade-Alert), with speculators so far picking up bearishly oriented options by a ratio of about 1.58-to-1 over bullish. In fact, the site of peak open interest by a wide margin -- in both the freshly expired June series and the newly front-month July series -- is the 100-strike put, which was more than 35% out of the money at Friday's close.

Even analysts, who are usually good for at least some trace amounts of undue euphoria, appear entirely crowded onto the sidelines. BYND has eight analysts in coverage at the moment, and every single one calls the stock a "hold." While that may not seem overly pessimistic, note the average 12-month price target of $103.50, which suggests that the brokerage community is anticipating Beyond Meat shares to shed roughly one-third of their value over the coming year.

With that emerging sentiment backdrop in mind, BYND is also creating a series of price points worth watching for those inclined to begin tracking the stock's technicals. For starters -- despite opening squarely at $200 per share on June 18, and trading as high as $201.88 on the session, Beyond Meat shares have never settled "beyond" (with apologies) the $170 level. On five separate occasions so far in the month of June, BYND has traded above $170 on an intraday basis, but in all five instances has closed the day below this round number (and sometimes by a matter of pennies).

In fact, four of those instances occurred on Monday through Thursday last week, with Friday marking the first session in five that BYND didn't trade above $170 intraday, thanks to an opening bear gap. What's more, the stock closed consistently lower in each of the last four days of the week, and as a result finished Friday's session by breaking an 18-day winning streak above its 10-day moving average (its longest ever).

And where did BYND find support last Friday, as its short-term trendline floor gave way? Squarely at the $150 level, which marked its precise intraday low (and six times the IPO price). Further south, if the sell-off should continue, is the round $130 area -- in the neighborhood of the rising 20-day moving average at $128.18, and double BYND's IPO-day closing price of $65.75, at $131.50. And just another notch below that is $126.04, which marked the stock's low close after its post-earnings bull gap in early June, and five times the IPO price at $125.

Of course, the immediate short-term test of investor sentiment on BYND will be to see how traders react to the stock's week-ending breach of its 10-day moving average and ensuing intraday hold at $150. Will this be a buying opportunity, or an excuse to pile on more shorts? But based on what we've seen on the charts so far, the real acid test of trader sentiment toward Beyond Meat likely won't come until the stock makes another run at $170 to the upside (particularly with $175, seven times the IPO price, just above), or $130-$125 to the downside.

bynd daily stock chart june 2019

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, June 23.

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