The shifting analyst community is telling
Subscribers to Chart of the Week received this commentary on Sunday, August 11.
Lost in the shuffle of a dramatic week was mortgage rates falling to 15-month lows. Although homebuyers are hardly feeling the reprieve yet, any scrap of upbeat economic data is valuable considering the selloff Wall Street went through on Monday. Now, focus once again zeroes in on the highly anticipated, interest rate cut from the Federal Reserve in September. This would come after more than a year of no change to rates, which has left an intense environment for home and car buying while making loan providers work that much harder to keep their businesses from suffering. Most lending stocks have taken a hit this year, with the likes of Affirm (AFRM) 48% lower year-to-date, NerdWallet (NRDS) down 23% for the same time frame, and LendingClub (LC) off 15% in the past month alone. However, one stock seems to be bucking the broader trend of its peers.
Lending stock Upstart Holdings (UPST) looks to be bucking its long-term trend of instability, finally breaking out of a lockbox of pressure allotted by the 260-day moving average. This resistance lasted nearly a year, with an additional descending trendline connecting UPST’s December peak and July lower highs, putting an additional weight on shares. Upstart Holdings (UPST) is now sitting comfortably above both trendlines.
UPST entered the weekend fresh off five-straight wins and August 7, hit a nearly six-month high after the company reported an upbeat third-quarter revenue forecast. The stock is also on track to flip on its two consecutive weekly of losses, and is eyeing nearly a 50% gain during this perfect week. That’s pretty impressive when you consider the red ink most equities on Wall Street are swimming in this week.
It’s also interesting considering notable call activity on the ask side was present in late-July at the weekly, and now expiring, 8/9 33-strike. UPST’s earnings reaction was a magnet to and above this strike amid heavy morning call volume, particularly at the 35-, 38-, and 40-strike calls in the same series. Further, when the security hit its February closing high, shares began to retreat. Total put volume and 33-strike call volume (liquidations) suddenly emerged as the stock faded back to $33 at the close. There’s been so such price action today.
Short sellers have done well on this name and maintain a healthy position currently with 24.5 million shares sold short, boasting an $833 million notional value alongside a short interest float of 32.2%. Even analysts are shifting with the shares, the consensus sporting nine “sell” or worse recommendations as recently as May. Now, of the 16 in coverage, only seven sit under the “sell” and “strong sell” umbrella, with one brokerage even being bold enough to give a “buy” recommendation.
The analyst community shifting from “they’re going out of business" to "could there be a chance?” is telling, especially given the external, impending volatility shifts looming for the remainder of the year. The current consensus for a rate cut next month looks to be 100%, per CME’s FedWatch tool, while the expectation for mortgage rates is they will extend their downtrend, per the Mortgage Bankers Association (MBA). Rates are far from linear, however, so continue to expect the unexpected as the market continues to combat volatility in both the trading and economic data spheres. Amid that volatility, steadfast winners like UPST are worthy of your attention.