SoFi: Take The Money And Run (Technical Analysis) (NASDAQ:SOFI)

SoFi Technologies, Inc. (NASDAQ:SOFI) momentum buyers have continued to deliver more pain to the bearish investors and short-sellers as SOFI surged and re-tested highs last seen in March 2022.

Wedbush analyst David Chiaverini’s downgrade on fair value accounting concerns in early May helped set the stage for the ultimate bottom for SOFI dip buyers. SOFI’s price action shows that the initial sharp selloff following the downgrade was expeditiously reversed with an astute bear trap or false downside breakdown, ensnaring short-sellers or holders who cut in fear at the worst possible moment.

SOFI’s bear trap move cannot be overstated, as it likely took out a lot of bearish momentum, as these short-sellers were forced to cover rapidly. I even gleaned more short-sellers reloading their bets at the end of May, as SOFI’s short interest as a percentage of its float increased to above 14%.

However, with the surge over the past two weeks, I assessed that these short-sellers who reloaded saw their positions getting burned once more. However, I also gleaned that dip buyers from SOFI’s May lows likely saw the opportunity to take profit, as SOFI formed a potentially ominous bull trap or false upside breakout at the end of this week.

From a price action perspective, this is the time to cut and a much better time to do so than holders who ran when Chiaverini spooked investors, as they crashed out at SOFI’s May lows.

Accordingly, SOFI surged nearly 130% through this week’s highs from its May bottom. However, the bearish reversal that SOFI ended the week with is a red flag.

Investors are likely betting that the resumptions of its student loans could lead to a more normalized origination volume moving forward. Management also fanned optimism as CFO Chris Lapointe stressed that the company “expects an uplift in demand in Q4.”

Moreover, Wall Street analysts have also revised their projections, reflecting the boost. Oppenheimer reportedly increased quarterly revenue estimates through Q4, “as well as the 2024 revenue estimate.”

Bank of America (BAC), cautioned that the “positive aspects of the [student loan resumption] story are already priced into the stock.” In addition, Piper Sandler cautioned that SOFI’s valuation is no longer that attractive. Moreover, it also added that higher interest rates could prove a “near-term headwind” to SoFi.

Furthermore, management’s recent commentary implies that refinancing tailwinds driven by expectations of lower rates might not accrue to SoFi in the near term, even though the company should see a rebound from loan extension applications. Lapointe accentuated:

I think you’re going to see a lot of people [refinancing] by extending out the term. And I think as rates come down, which everyone expects them to do over the course of the next 12 to 18 months, I think you’re going to get another wave of people who are looking to refi that have those extended terms, but now at a lower rate. – Morgan Stanley US Financials, Payments and CRE Conference

In addition, I also assessed that SOFI’s recent significant outperformance against its Financial sector peers (XLF) is likely unsustainable.

However, I gleaned that SOFI’s downtrend against its sector peers has decisively reversed, with its May lows forming the peak pessimism for SOFI/XLF. In other words, SOFI/XLF looks primed to continue on its nascent medium-term uptrend, a pivotal development.

Therefore, SOFI “perma-bears” who shorted at its all-time highs should consider the reversal in trend carefully to close most, if not all, of their profitable positions.

While I expect a steep pullback after such a monstrous surge, dip buyers deciding to cut exposure on valuation and price action concerns should observe the consolidation closely for another opportunity to return.

For now, it’s time to cash in.

Rating: Sell (Revised from Hold).

Important note: Investors are reminded to do their own due diligence and not rely on the information provided as financial advice. The rating is also not intended to time a specific entry/exit at the point of writing unless otherwise specified.

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