Thursday’s price action on Wall Street was truly fantastic to watch. I bet that retail investors did not feel the same way overnight coming into the session. It was a scary night of crashing markets from a whirlwind of headlines. But the indices miraculously clawed their way back up from an incredible hole. After a deep dive open, the S&P 500 closed up 1.5%. The Nasdaq soared an astonishing 3%-plus boost. The distance they covered from lows to highs was immense. Pinterest (NYSE:PINS) stock for example fell 6% overnight then closed up 8.34%. My point today is that PINS stock still has so much more potential in the long run.
Source: Nopparat Khokthong / Shutterstock.com
Equities are currently on sale because of extreme fear. The actions seem illogical because of human sentiment. We can’t help overreacting, and often we become irrational investors. This situation has persisted since the pandemic, but has rekindled this month. The threat of global wars is a justifiable reason for feeling uneasy. But homework like this helps investors minimize trading mistakes.
The rally out of 2020 was very wrong, but so is this incessant selling. There is no real reason for PINS to continually fall without reprieve. The business is extra strong yet the stock is has completely broken down. This is a wrong that will right itself soon. Investors will soon recognize the value PINS stock brings to the table again through simple math.
PINS Stock Trimmed Its Downside Risk
Source: Charts by TradingView
The current panic status makes it difficult to invest in stocks with strong conviction. Therefore, today’s opportunities in Pinterest should come with a bit of humility. I am very confident that at these levels Pinterest stock offers a good upside scenario.
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The downside risk has severely shrunk after it has collapsed 75% from its high. What was a potential chasm below a year ago is now but a small pit. At its lows yesterday, the stock was at levels from May 2020, when the world was completely off.
Judging by the stock’s price action, one could mistakenly assume that its business is in deep trouble. Nothing could be further from the truth, and don’t just take my word for it.
For the last four years, management grew revenues more than 50% sequentially. They even pulled off net income in excess of $315 million last year. These are not statistics that raise concerns about the future of the company.
Nevertheless, PINS stock has been straight downhill for a year. While it was wrong to chase it at $88 per share, it is equally wrong to panic out near $20.
At the root of the crash was the ferocity with which equities rose out of the pandemic bottom. The indices went nuts and most definitely the bulls over did the buying. They created extremely vulnerable frothy conditions, and it only needed a spark to fall apart.
Beware of Headline Risks
First the Federal Reserve rhetoric, and now global war threats from Russia. Soon we will know if Pinterest stock has shed enough froth it built up in 2020. If so, then it can finally go about its business trading on fundamentals and some technicals. Meanwhile, markets are still slaves to headlines overall. The situation in the Ukraine is too volatile to ignore. Therefore, even though I am optimistic, I would not suggest going all in.
Technically, PINS stock does not have any near-term support. The next bounce levels are 8 months old; 10% below its current price. So there isn’t immediate footing for the bulls on which to build rallies. They will need to invoke a lot of courage and ignore a lot of bad headlines. Patience will be a virtue this quarter.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
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