The market is struggling on Thursday. Unfortunately for SoFi Technologies (SOFI) – Get SoFi Technologies Inc Report bulls, the stock is not sticking out because of its outperformance, like Costco Wholesale (COST) – Get Costco Wholesale Corporation Report.
Instead, the stock is easing, off about 7% on the day. It had been down as much as 13% earlier in the session. At today’s low, the stock was down almost 25% from this week’s high. That’s a tough three-day skid for the bulls.
Whether it’s a meme stock or growth stock, SoFi has had a tough short term.
The Ark Innovation Fund (ARKK) – Get ARK Innovation ETF Report has been hurt over the past several months too, as the ETF is used as a proxy for high-growth stocks.
In regards to today’s drop specifically, SoFi cut its 2022 revenue and Ebitda guidance after the U.S. government extended the pause for student-loan payments.
That’s not really SoFi’s fault, but the stock will pay the price because it hurts the company while its stock is in a bear market. Now let’s look at the chart.
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Buying most growth stocks at the moment is akin to catching a falling knife. Many had a strong bounce off the lows — SoFi stock included — but are now back under pressure.
While SoFi shares rallied 36.5% at one point, they’re now back down to the levels traders saw three weeks ago. Will the rest of the growth stocks follow SoFi lower?
In time, we’ll find out. For now, though, one stretch of silver lining is in play.
When I look at the SoFi chart, I see the stock undercutting last month’s low at $7.73 and doing so with bullish divergence on the RSI measure. Notice how the RSI is not making new lows while the stock price is.
Now this divergence alone does not make the stock a buy. It’s just one piece of the puzzle.
Aggressive bulls can look at SoFi stock as it reclaims last month’s low and leaves a new low in play at $7.64. If we can close above $7.73, it could give these aggressive longs an entry signal, while using a stop-loss just below the new low.
In this scenario, clearing today’s high at $8.40 would open the door to the 10-day and 21-day moving averages.
The concern here is the rest of tech and the growth market. If those stocks — like ARKK — continue lower, SoFi will likely get pushed lower, too. So that’s the risk, but at least that risk is contained.