MercadoLibre, Inc. (MELI) shares fell 4% even though the company reported better-than-expected second quarter financial results. After moving sharply higher during pre-market hours, the stock fell to form a bearish engulfing as the day unfolded. The move suggests that the stock could see a correction after more than doubling so far this year.
Second quarter revenue rose 61.6% to $787.37 million, beating consensus estimates by $129.16 million, while GAAP per share earnings came in at $1.11, beating consensus estimates by $1.11. Gross merchandise volume soared to $5.04 billion, which was significantly higher than the $3.96 billion that analysts were expecting to see.
The company reported a 42.5% increase in unique active users, saying that the pandemic generated significant changes in consumer behavior, which translated into a new milestone in the penetration of e-commerce and online payments across Latin America.
In late July, Credit Suisse upgraded MercadoLibre stock to Outperform and raised its price target from $770 to $1,225 ahead of the second quarter financial results. Analyst Stephen Ju believed that nearly all of the company's operating regions were seeing triple-digit year-over-year gross merchandise value growth rates due to the COVID-19 pandemic.
From a technical standpoint, the stock experienced a bearish engulfing following its move lower during Monday's session. The relative strength index (RSI) moderated to 60.78, and the moving average convergence divergence (MACD) lost some of its bullish momentum. These indicators suggest that the stock could continue to see a pullback before moving higher.
The stock pulled back to the 23.6% Fibonacci retracement during Monday's session before recovering some ground. Traders should watch for these levels to hold over the coming sessions, and if not, a possible move to the 38.2% Fibonacci level, where there has been significant volume traded. If the stock moves higher, it could retest prior highs.
The author holds no position in the stock(s) mentioned except through passively managed index funds.