Shares of iQiyi (NASDAQ:IQ) certainly have experienced a rough few months. The stock price of the Chinese streaming media company has been cut in half after reaching an all time high of $44.20 on June 20. While certainly some of the drop can be attributed to momentum-based over exuberance on the run up, the selling has now reached an extreme. Look for IQ stock to find some footing and be a solid performer over the coming months.
IQ is sometimes called the Netflix of China. Investorplace writer Tom Taulli delved deeply into the numbers in his quality analysis a few weeks ago. He noted the 67 million domestic subscriber base for IQ already surpasses that of Netflix. iQiyi showed strong growth of 75% in subscribers and over 50% in revenues in Q2.
The company announced third-quarter earnings on October 30, which initially were met with selling. This selling came despite a 48% increases in revenues and a 89% year-over-year increase in subscribing members — to over 80 million. The company also guided to a 46% revenue increases in Q4. So growth remains strong, even though IQ stock headed lower.
IQ Stock Price Action
This recent bout of selling took IQ stock back below the major $20 support level before shares rebounded. Shares reached the most oversold levels in their brief history with a 9 day RSI well below 30. The only previous time iQiyi stock breached the 30 oversold area proved to be a intermediate-term low in IQ.
Bollinger Band %B also confirmed the extremes of selling by briefly turning negative before rebounding sharply. MACD also is turning bullish and will generate a fresh buy signal on any further strength.
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The price action following earnings also portends to a bottom in the shares. After opening below $20 per share at $19.47 , IQ traded down to nearly $19 before reversing course to close at $19.64. This doji formation is many times emblematic of a trend reversal as the sellers finally have become exhausted. This also bodes well for a continued rise in IQ stock.
The Bottom Line on IQ Stock
For investors and traders looking to add a solid growth stock to the portfolio, IQ is certainly one to consider. I would use a move back towards the previous lows at $25 as an initial price objective and a meaningful break below $19 as a stop out area.
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his strategies can go to https://marketfy.com/item/options-and-volatility.