The company's earnings report is due next Monday morning
Overstock.com Inc (NASDAQ:OSTK) gapped 21.5% lower on Dec. 17, after the company extended a deadline with Hong Kong-based private equity firm GSR Capital to finalize an investment in its tZERO blockchain unit. The shares went on to hit a two-year low of $12.33 on Dec. 19, but have since bounced back. This rebound has OSTK trading near a trendline that's been a reliable short-term sell signal in recent years, suggesting it could be time to drop the stock before Overstock reports earnings later this month.
Specifically, OSTK shares are trading within one standard deviation of their 160-day moving average. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, there have been five other times since 2016 the stock has run up to this trendline after having traded below it 60% of the time in the previous two months, and 80% in the prior two weeks.
Following these previous signals, the equity went on to average a one-week loss of 7.41%, with just one of those returns positive. Based on its current perch at $21.55 -- down 1.7% on the day -- another drop of this magnitude would put OSTK stock back below the $20 level by this time next week.
Another potential headwind staring down Overstock is the company's fourth-quarter earnings report, due ahead of the open next Monday, March 18. The stock has averaged a single-session post-earnings swing of 9.8% over the past eight quarters, with three of the four most recent reactions resulting in sharp downside moves -- including a 15.5% drop last November. This time around, the options market is pricing in a 19.3% move for Monday's trading, regardless of direction.
Short sellers are certainly banking on more downside for the stock. Short interest surged 23.4% in the most recent reporting period to 16.7 million shares. This represents a brow-raising 68.7% of OSTK's available float, or 4.9 times the average daily pace of trading. Continued pressure from shorts could send the equity even lower.