New Plan for SoFi as a Sell the News Event Looms
SoFi hits for a 30% gain in under seven weeks and here’s what happens next.
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Back on August 30, I presented a trading plan for SoFi SOFI (point A). The San Francisco-based provider of loans, credit cards and investment products was breaking out to multi-month highs, and we wanted a piece of the action.
Fast forward, and our target of $10.40 (point B) has been achieved, for a gain of 30% in less than seven weeks. The stock reached a high of $10.49 on Tuesday, and fell to $10.04 by Wednesday’s close.
While it’s nice to ring the register, we can’t help but wonder if we should’ve held on longer. The stock’s explosive move occurred on heavy volume (green arrow), which is often a sign that a move has legs.
Seller’s regret is a real thing, but let’s not second guess ourselves. There were good reasons to take the money and run.
The best reason is SoFi’s upcoming earnings report, scheduled for October 29. Analysts are looking for $631.8 million in revenue, with earnings of $0.039 per share.
I’m not suggesting that SoFi will miss its numbers, but after last week’s rally, I have to wonder if a strong earnings report is already priced into the shares. We could be about to witness a classic case of buy the rumor, sell the news.
I'm also concerned about the technical mechanics of last week’s rally. The critical point for SoFI was a resistance level near $9.25, set in March (point C).
Notice how the price gapped right through that area on October 14 (point D). It’s possible that unfilled orders remain in that gapped $9.25 area, and the price could return to fill them.
Notice also how SoFi reacted when encountering a $10.50 resistance level (green line), set in late December (point E). It reacted like a collision with a brick wall, coming one penny short of that level and sliding ever since.
Would I buy this stock again? Yes, but only under certain conditions.
First, I’m staying out of the stock until at least October 30. I want SoFi’s third quarter earnings report in my rearview mirror before I’ll even consider buying again.
If SoFi sells off after a decent earnings report, I’ll consider another purchase if the stock can fill the October 14 gap. In order to fill that gap, the stock needs to fall to approximately $9.07, which was the October 11 high.
On the other hand, if SoFi breaks above the overhead resistance level of $10.50 after that earnings report, I’ll consider a long position on a pullback. We could use a retreat to $10.50 area as an entry point, depending on where the price is and how it is behaving after the breakout.
At the time of publication, Ponsi was long SOFI.
