With the Omnicron worries around the world, we might see a flight back to online retail as we did during the original COVID 19 run. Overstock (OSTK) not only has exposure to online retail but also to blockchain technology and cryptocurrency trading platforms. It has come into a significant support area, and I really like the stock here.

I was expecting a bounce in the market last week into the new year, and that’s exactly what we got. You can read more about how I traded this market bounce by getting long SNOW here. With the SPY coming into resistance at the $472 area this week, we could see some choppy action ahead. 

Keeping that in mind, I believe I’ve found a great value stock that has been significantly oversold and is now trading at very attractive levels. That stock is OSTK. I like it because it is down 40% off its highs in a relatively short period of time, and it is consolidating at a major support level. It didn’t follow the market higher last week, but if it holds here, I think we could see a 10-30% move the upside in a very short period.

Fundamentals

Overstock.com (OSTK), Inc. operates as an online retailer in the United States. It operates through retail, tZERO, and Medici Ventures segments. The company offers furniture; and home decor, including area rugs, bedding and bath, home improvement, kitchen and dining items, and other related products.

Further, it focuses on the development and management of financial applications of blockchain technologies. 

Technicals

Overstock.com Inc (OSTK) has been oversold from the highs near $110, and is currently trading in the $60s as the bulls are trying to find a bottom.  

If OSTK can continue to form the ‘W’ bottoming pattern, I would expect to see the bulls push above the 100 and 200 hourly moving average.  

From a technical perspective, the $70 and $80 level seems to be an area the bulls might target to the upside is they are prior pivot levels where the bears stepped in and sold off OSTK with momentum to the downside.

The Trade

I took the trade last week. I bought 40 of the Jan 22 $60 calls for $6 with 30 days to expiry. Since then, the stock has continued to consolidate around the $62/$63 area, and I’m down slightly on the position. I expect it to break out in the next couple of weeks if it is going to go at all. Naturally, the quicker the move happens, the better it will be for my position.

Bottom Line

I don’t look to catch falling knives. 

However, when a stock is significantly oversold in a short period of time into MAJOR support levels, this can get my attention for a good risk-reward setup. Such is the case with OSTK, which has sold over 40% in just over a month and is trading at a major prior support level at $60 to $62. OSTK has consolidated the last few days, and I have taken a long position by buying calls. 

This defines my risk to the downside and leaves me with upside potential if the stock does what I think it will and goes higher. I am targeting the $70 and $80 levels to scale out of my position!