Market enthusiasm waned on Thursday ahead of the extended Easter holiday weekend, but this didn't stop shares of Sina Corp. (SINA). Sina is a Chinese online media company for Chinese communities around the world. It is also the parent company of Weibo (WB), a social media platform in China, which went public on Thursday.
Weibo is similar to Twitter, but offers a richer multimedia experience. Sina maintains majority ownership of this microblogging service and wields 80% of the voting power in the company even after its IPO.
Wiebo's IPO was priced at $17.00. This was considered as being at the low end of its expected range, but was nevertheless chosen due to recent weakness in tech stocks in general. It opened for trade at $16.27 at noon on Thursday, hit a high of $24.48, and settled at $20.18. All-in-all, it was one of the best debuts for a U.S. listed tech stock so far this year and Sina shareholders profited nicely from the event.
Sina has had its share of struggles this year. A rally off monthly support throughout 2013 brought Sina shares into strong resistance at the 50% retracement level for the broader bull run that began in 2009, as well as the 38.2% retracement of 2011 selloff. As this zone hit around $80 to $90 a share, the momentum of that rally shifted. Slightly higher highs beginning in the third quarter of 2013, which resulted in a more gradual uptrend channel into the New Year, eventually gave way to a selloff in October. This selloff gained momentum in early January and two major waves of downside followed.
Not only does the daily chart suggest that Sina has room to maneuver off its current daily lows, the selloff that began last fall has taken Sina into major price support on the weekly and monthly time frames as well. Sina broke free in 2010 from an extended monthly trading channel. This month's lows correspond to the breakout zone from that trading channel. It is also the 76.4% Fibonacci retracement of that bull rally and the low from the 2011 pullback that initially retested that breakout zone. Given that the momentum, or pace of the selloff, on the return trip to this level is similar to the rally off it in 2013, there is a good chance that we will see a reaction here as well.
This is where things become tricky. While the support is certainly easy to see, the type of reaction Sina has to this level takes a bit more guesswork and reliance upon how the daily price action off this level unfolds.
Both of the waves of selling in 2014 were comparable in terms of both momentum and the extent of the move. The second was only slightly larger than the first and slightly slower. This brings Sina into what may be aptly referred to as the "valley" following the "mountain."
At this level, the price swings tend to be smaller, even if the momentum of each of those swings remains strong. This can result in strong initial bounces that retract quickly and are followed by slightly lower lows, changing the trading channel in a manner similar to the 2013 highs before rallying with greater conviction.
Alternately, a stronger bounce might hold and then be followed by a longer period of congestion to help once again shift favor to the bulls. Both scenarios tend to work well for the short-term swing trader who holds for several days or a couple of weeks at a time, but can be more risky for the longer-term position trader that is looking to hold weeks to months at a time.
The greatest dangers for the bulls is if Sina falls into a protracted trading channel in the lower end of the bear trend that began last fall. This could eventually give way to another wave of selling on the monthly time frame into the lower end of the larger monthly support zone (as low as $32) before another major monthly uptrend can begin.
Such a channel could take up to a year to develop and would involve many smaller price swings on the daily time frame. These swings tend to be the easiest to trade in the early stages of the channel (which would mean the next several months) and then the final stages (which would be likely mean late this year or early next).
The three scenarios discussed above, which are all common at these levels, can be seen on the weekly chart of Sina below. Again, the larger outcome will now depend upon on the momentum on the smaller daily price swings at this time and the bias can shift rather quickly with a number of variations on each of these themes being possible.
Notice that in each scenario I still have an initial upswing. This is because of that daily support combined with the positive press stemming from the Weibo IPO. I feel that both of these factors will held Sina initially continue its reaction to this support level.
But as the Weibo IPO buzz fades, Sina will become susceptible to another daily to weekly pullback, although it is unlikely to match the selling found in the previous waves of weakness from this year before it once again pulls higher.