Why There's Hope For Pinterest's Stock Following Post-Earnings Tumble

Pinterest Inc PINS opened Friday’s trading session nearly 20% lower after printing its second-quarter results on Thursday after the closing bell. Although the product and idea discovery platform beat revenue expectations, investors were spooked by weaker-than-expected growth in monthly active users.

Following the results, a number of analysts also lowered their price targets for Pinterest. Evercore ISI Group, the most bearish on the stock, lowered its price target to $60 while Credit Suisse which remained the most bullish on Pinterest lowered its price target from $94 to $82.

A few institutions entered Pinterest's stock through the use of options Friday morning to buy the dip. One option trader purchased 469 Pinterest call contracts at $5.40 per piece with a $70 strike and an expiry of Feb. 18, 2022. The trader paid a total of $253,260, which is a fairly big bet Pinterest’s stock will recover over the next several months.

As far as Pinterest’s chart goes, there’s a 90% chance Pinterest will trade, at least, up to the $70 mark in the future.

See Also: What's Up With Pinterest's Stock Today? 

The Pinterest Chart: When Pinterest gapped down following earnings, it left a massive gap between $60.88 and $70.13. Because gaps fill 90% of the time, it's most likely Pinterest will rise back up to its pre-earnings prices in the future. When Pinterest gapped down following its first-quarter results on April 28, it took just under two months for the gap to fill.

Huge bearish volume on Friday morning pushed Pinterest down further and put it into oversold territory. At one point, Pinterest registered a relative strength index (RSI) of 29.83%. Often when a stock enters either oversold territory, below 30% or overbought territory, over 70%, the stock rises or lowers to correct the RSI.

Pinterest is trading well below the eight-day and 21-day exponential moving averages (EMAs) and Thursday’s bearish action caused the eight-day EMA to cross below the 21-day EMA, both of which are bearish indicators. Pinterest is also trading below the 200-day simple moving average, which indicates overall sentiment in the stock has turned bearish.

• Bulls want to see sideways consolidation over the next few days and for Pinterest to hold support above $53.94. If Pinterest can hold the level as support and trade sideways, bulls can watch for big bullish volume to come in and start pushing the stock back up towards the gap.
• Bears want to see Pinterest lose support near the $53 level. If the stock loses the level, it could fall toward $48.29 where there is another gap.