- A look at Friday’s nasty rejection in UPST…
- Going over the topping signs we can see in hindsight…
- How I might trade UPST puts — and how Evolvers can potentially capitalize on this setup…
Going over the topping signs we can see in hindsight…
How I might trade UPST puts — and how Evolvers can potentially capitalize on this setup…
Hey, Evolver.
I took a few days off from the market last week to celebrate Rosh Hashanah, the Jewish new year, with my family. My break was nice, but it sure feels great to get back to the grind…
On Friday, red-hot, AI-lending stock Upstart Holdings Inc. (NASDAQ: UPST) started to break down, dropping 6.6% intraday.
This wasn’t a shocker — UPST was one of the stocks on my puts watchlist last week.
I missed the first red day, but I think there may be juicy downside remaining. Let’s take a look at why…
UPST’s Background
UPST is especially notable because it’s one of the biggest IPO winners of 2021, even though it technically went public in 2020…
UPST debuted on the Nasdaq in December 2020 at just $26 per share.
As of this writing, UPST trades for $277 — up a mindblowing 840% from its IPO price.
Short sellers like me look at a stock that has run this far in this short of a period and see one thing — dollar signs. More on that later.
UPST began a gap-up momentum surge following its blowout Q2 earnings results.
The company beat analyst’s expectations on every metric — including increasing its revenue by a whopping 1,000% year over year.
Let me make something clear: I’m not super bearish on this company overall. I think Upstart seems to be doing a good job of filling a clear void in the insurance and lending industries.
That being said, Friday’s reversal could indicate that the chart’s heading lower.
Big Rejection Near $300
I’ve said it before, and I’ll say it again…
When stocks get rejected near big round numbers — pay attention.
This is what happened to UPST on Friday — a sharp rejection near $300 (reaching a high of $291.25 intraday).
At this stage in a topping pattern, it can be tempting to think too narrowly and miss a great entry…
Always consider the big picture.
In hindsight, the pullback was always inevitable. This is exactly why I had UPST on my weekly watchlist. It was up a cool 100% in just a few weeks.
Moreover, the chart had become even more extended over the past month of trading.
Ever since its earnings announcement on August 11, UPST has been pretty much unstoppable.
I expected it to get closer to $300 before the first red day, but it didn’t even test $295. The fact that UPST didn’t get to $300 gives me more conviction in further near-term downside.
But as Evolvers know, I prefer to wait for a bounce…
Bounce Back to $280
On Monday, UPST had an opening flush down to $259. But it soon bounced back exactly as I predicted…
At the time of this writing, the intraday high was $280 — to the cent.
I think the simplest price target is one that the chart has already tested on the way down, $260.
I’m eyeing UPST 9/17 $260 puts, but not buying anything just yet.
Note: Although I see strong bearish indicators in UPST’s chart, keep in mind how volatile this stock is. There’s no reason to size big here. The downside could be juicy, but UPST could just as easily continue to rip higher. Never risk more than you’re willing to lose — and cut any losses immediately.
Lesson Summary
- UPST is another weekly watchlist pick that has played out just as I anticipated…
- A round-number rejection at $300, coupled with a lower rejection at $280, presents a potentially mouth-watering setup for puts this week…
- With that in mind, UPST is still incredibly hot. As usual, approach this trade with caution and discipline…
Conclusion
UPST is a beauty — an insanely hot stock hitting a reversal. It’s displaying a lot of the bearish signals I look for regularly.
It’s nice to come back to such a great setup after my vacation last week. But that doesn’t mean I’ll be overexuberant with my trading…
I’m sticking to my price targets, trading carefully, and waiting for the perfect moment to strike. I suggest Evolvers do the same.
Happy New Year,
Mark Croock
Editor, Evolved Trader Daily
P.S.
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