Clover Health stock sunk deeper into the red yesterday and losing 68% in a month. CLOV is battered and bruised but may now be getting cheap.
Clover Health Investment Corp (NASDAQ: CLOV) continued its slide below $10.00, finishing the session at $9.36, down $0.36 (-3.70%).
CLOV is back trading at the same level it was on the 7th of June. Which when you say it like that doesn’t sound too bad. However, when you consider that on the 9th of June, Clover Health was changing hands at $28.85, it sounds absolutely disastrous. This begs the question, is CLOV now an attractive addition to your portfolio? To answer this, we should first understand what has been moving the price.
Why did Clover health rally? Simply because people had wagered that it wouldn’t. The high short interest in CLOV was responsible for June’s riotous rally. Presently, 36.7% of the available float is in the hands of short-sellers. This made Clover a prime candidate for a short-squeeze.
Furthermore, the 41,400,000 shares short position still makes CLOV a prime candidate for a short squeeze.
Why CLOV dumped? Yesterday’s expiration of the lock-up period could be considered the catalyst for the recent plunge. The market had pre-sold ahead of the expiration, expecting early investors to unload their stock, forcing the price to head lower.
This price weakness has subsequently pushed Clover beneath several significant support levels. Which, in turn, could elicit more selling. However, this fire-sale may provide an opportunity for long term investors to buy the stock at a reasonable valuation.
The daily chart shows that CLOV has broken below all three major moving averages. Significantly, in yesterday’s decline, Clover lost the support of the 100-day moving average at $9.57. I consider this important, as the last time the stock crossed this threshold (on the upside), it rallied close to 200% in two days.
On that basis, we could see another bout of liquidation today. Although, I expect limited downside from here. Clover should see good buying towards the $6.34 all-time low. If nothing else, the short interest provides an asymmetric risk profile.
A positive sign for longs will be if the price closes above the 50 and 200 DMA’s at $10.45 and $10.79, respectively. This could be a precursor to another rally, initially targeting the 24th of June’s $15.10 high.
If 2021 has taught us anything, it’s to be greedy when others become fearful.
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