Overstock.com, Inc. (OSTK) shares fell more than 20% during Wednesday''s session following CEO Patrick Byrne's surprising statement about his involvement in the FBI investigation of the 2016 election. DA Davidson's Tom Forte warned that the CEO's involvement could hurt Overstock's operating results due to the controversial aspects of the issue, although he maintains a Buy rating on the stock.
"What you have here is a highly controversial CEO and another example of something that's controversial," said Forte in an interview with Bloomberg. "There are times like right now where that has a negative impact on the performance of the stock. The frustrating part is that the legacy home e-commerce business has returned to positive cash flow. The two assets – e-commerce and blockchain – are incredibly well positioned."
Just days earlier, Overstock announced that its preferred equity security tokens, tZero, were available to be resold to non-accredited investors, making another milestone in its efforts to democratize access for all investors to participate in the blockchain-based capital market. These efforts are also under a microscope following an SEC investigation into the company's tZero push and a wider crackdown on initial coin offerings (ICOs).
From a technical standpoint, the stock has fallen nearly 40% since the statement surfaced at the beginning of the week. The relative strength index (RSI) fell near oversold territory with a reading of 39.67, but the moving average convergence divergence (MACD) experienced a bearish crossover. These indicators suggest that the stock could see greater downside ahead before experiencing a relief rally.
Traders should watch for a breakdown from the 50- and 200-day moving averages at around $16.00 over the coming sessions. A move off of these levels could lead to a move toward support levels at around $14.00 or even prior lows at around $9.00, although the company's improving fundamentals could support prices. If the stock rebounds, traders should watch for a move toward resistance at around $20.00 before Overstock possibly retests its highs made just a few days ago.
The author holds no position in the stock(s) mentioned except through passively managed index funds.