Upstart Gaps Down 20%: What's Next?

Upstart Holdings Inc UPST gapped down over 22% on Wednesday after reporting a third-quarter revenue beat. Holding stock or options over earnings is akin to gambling because a stock can rise following a negative print and a stock can fall after printing positive results.

Coinbase Global Inc COIN also gapped down significantly after a big earnings miss but like Upstart, bulls came in and bought the dip. Positive overall market headwinds have helped both stocks to recover some of the post-earnings losses, although by later in the morning Upstart was struggling to hold its intraday gains.

See Also: Analyst Ratings For Upstart Holdings

The Upstart Chart: The steep decline on Wednesday may be due to a technical pattern playing out as opposed to a reaction to earnings because on Tuesday Upstart broke down from the neckline of a bearish head-and-shoulders pattern on the daily chart. The stock had created the left shoulder between Sept. 15 and Oct. 6, the head between Oct. 7 and Oct. 27 and the right shoulder between Oct. 28 and Tuesday.

For technical traders, when a stock breaks from a pattern on high volume it adds confidence the pattern was recognized. The measured move of a head-and-shoulders pattern is equal to the distance, in percentage, between the top of the head and the neckline. On Upstart’s case the measured move was 25%, which is exactly equal to the distance from the break of the neckline to where Upstart opened the trading session on Wednesday.

Upstart’s relative strength index (RSI) also gave an indication the stock may bounce as the oscillator hit the 33% level. When a stock’s RSI nears or reaches the 30% level it becomes oversold, which can be a buy signal for technical traders.

There are two gaps on Upstart’s chart that are likely to fill at some point in the future because gaps on charts fill about 90% of the time. The first lower gap falls between $140.61 and $156.77 and the second higher gap, which was left behind on Wednesday, lays between the $270.87 and $307.86 range.

Upstart is trading below the eight-day and 21-day exponential moving averages (EMAs), with the eight-day EMA trending below the 21-day, both of which are bearish indicators. The stock is also trading below the 50-day simple moving average, which indicates longer-term sentiment is bearish.

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• Bulls want to see sustained big bullish volume push Upstart back up above the $259 level, although some sideways consolidation may be needed for the stock to gain strength. If Upstart can regain the level as support, it has room to trade back up toward $294.23, which will allow the stock to partly fill the up gap.
• Bears want to see big bearish volume come in and drop Upstart down the $228.33 level. If the stock is unable to hold the level as support, it could trade down toward $191.89.