Another Bearish Shoe Is Set to Drop on OSTK Stock

OSTK Stock Is Primed for Further Losses
iStock/tampatra

OSTK Stock Is Primed for Further Losses

Nothing made as many headlines in the financial news in 2017 as Bitcoin and its compatriots. That was the year when cryptocurrencies became a household name and a common topic of conversation.

People were so enamored with the performance numbers that this sector was experiencing. Those numbers drove further gains in the cryptocurrency sector as participants were pulled in from the sidelines as fear of missing out (FOMO) played out in full effect.

This enthusiasm for Bitcoin and other cryptocurrencies spilled over into the stock market, and Overstock.com Inc (NASDAQ:OSTK) stock benefited greatly from it. In 2017, OSTK stock appreciated to the tune of 265.1%

Overstock stock and cryptocurrencies peaked in January, and both have been correcting ever since.

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In March 2018, I outlined in a report titled “The Bears Have Overstock Stock Surrounded” that the correction was gaining traction and that there were technical indications suggesting that OSTK stock was very likely to suffer further losses. Since then, Overstock has depreciated by 25.2%.

I am returning to focus on Overstock.com, an online retail company that has also moved into the cryptocurrency sector, because I believe that there is still too much optimism percolating in that sector.

I think that investors are about to get a rude awakening as people come to realize just how fragile the cryptocurrency sector really is. This assumption is based on a number of technical indications that are currently suggesting that OSTK stock is primed for further losses.

These technical indications are highlighted on the following Overstock stock chart.

Chart courtesy of StockCharts.com

Since my last report on Overstock.com, the stock price has broken down below the 200-day moving average. This moving average, which is highlighted in red on the chart, acts as a dividing line that separates bullish stocks from bearish ones.

Ever since Overstock stock broke below this moving average, it has not been able to regain its footing above it, suggesting that the stock is now in a bearish state.

This bearish indication was reinforced when the 50-day moving average crossed below the 200-day moving average. When these moving averages cross in this fashion, they create a death cross. A death cross is a signal denoting that a bear market is now in development.

Ever since OSTK stock began trading below the 200-day moving average, the stock price has been trading in a sideways range. While this trading range has been in development, the moving average convergence/divergence (MACD) indicator has been in bullish alignment.

Until now.

A bearish MACD cross was just generated, as the signal lines approached the zero line.

MACD is a trend-following momentum indicator that distinguishes between bullish and bearish momentum, using the crossing of a signal line.

Bullish momentum implies that a stock is geared toward higher prices, while bearish momentum implies that a stock is geared toward lower prices.

Momentum is a very powerful force, and a stock cannot sustain a directional move unless the applicable momentum is supporting it. Now that momentum has swung into the bearish camp, a sustained move toward lower prices can occur.

Analyst Take

To recap, OSTK is trading below its 200-day moving average, a death cross just generated in May, and—to top it all off—a bearish MACD cross is now in full effect. All of these indications are implying that the environment is primed for OSTK stock to suffer further losses.

I am bearish on Overstock stock because the current bearish signal continues to mount, suggesting that the path of least resistance is toward lower prices.

I will maintain this bearish view on OSTK stock until there are indications that this view is no longer warranted.