Overstock.com (OSTK) was downgraded today to a "sell" by theStreet.com's quantitative service. Regular readers of RealMoney and Kamich's Korner know that I like to combine investment approaches. Good ideas can come from anywhere and I have found over the past forty-five years of being in the business that you can make better investment decisions when you look across disciplines. So let's check the charts and indicators for OSTK.
In this daily bar chart of OSTK, below, we can see a number of bearish signals. Prices have made two "legs" lower from their early January zenith and are now below the declining 50-day moving average line. A rebound or bounce in February stopped or failed at the underside of the 50-day line. OSTK recently touched the rising 200-day moving average line but it doesn't look like this test is finished and further downside price action is anticipated. The daily On-Balance-Volume (OBV) line has been in a decline since early January and has not shown much of an upside response. In the lower panel we can see the 12-day momentum study which shows higher lows from February to March telling us the decline slowed. This is a bullish divergence but since prices have been more than halved I do not thing this divergence is going to generate much of a counter-trend rally.
In this weekly bar chart of OSTK we can see how prices made a line pattern in 2016 and halfway through 2017 before soaring from $15 to $90 in a few short months. Prices are currently testing the rising 40-week moving average line. Note the movement of the weekly OBV line. It was flat for more than two years and then exploded upwards for three months and is now below where it started. A lot of selling/liquidation has happened since the peak.
In this Point and Figure chart of OSTK we can see a potential downside price target of $18.67 or giving back nearly all of the rally. Easy come. Easy go.
Bottom line -- OSTK could bounce to around $55 but it is likely to be temporary and only result in another swing lower. In the weeks ahead I would look for the 200-day moving average line to be broken and further declines to the $30-$25 area.