Clover Health pulls back to trim gains as Redditors switch to new target

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his spare time,… read more.
on Jun 9, 2021
  • Clover Health stock on Wednesday pulled back more than 60% after speculators on Reddit moved to a new target.
  • The stock gained more than 211%, Monday through Wednesday pre-market, on meme stock speculation.
  • CLOV shares still look substantially overvalued after the pullback. Time to buy or sell?

Medicare and insurance services provider Clover Health Investments Corp (NASDAQ:CLOV) shares spiked more than 85% on Tuesday to add to Monday’s gains. CLOV stock extended gains on Wednesday pre-market before pulling back during the regular trading session. The stock is now up more than 112% from Friday’s close.

CLOV’s pullback shows why investors should be cautious of meme stocks

Redditors at /WallStreetBets continue to trigger massive spikes in meme stock prices. There are no clear fundamentals to justify the speculation. Therefore, investors should be cautious when trading meme stocks.

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To demonstrate why Clover Health’s massive spike was all about speculation, look at the company’s bottom line. Clover is still unprofitable over the last 12 months. There are no expectations on CLOV to turn profits this year or the next, although it has a projected average earnings growth of 32% over the next five years.

One major catalyst that investors can pick from CLOV is it has no significant debt commitments. Therefore, Clover has the flexibility to add more lines of credit to boost cash flows. Its current debt of $55.94 million is several times lower than the total cash of $684.57 million. However, the small debt does not warrant the current valuation placed on Clover Health stock.

Source – TradingView

Technical overview

Technically, Clover Health shares appear to have pulled back from this week’s sharp spike. The quick up-and-down movement is a common characteristic of meme stocks. It makes them very hard to predict where the price will move next. CLOV stock surged to overbought levels on Tuesday. It now seems to be moving back to the center of the 14-day RSI.

Investors looking to short CLOV shares can target profits at the key support levels at $13.17 and $6.63. On the other hand, investors still optimistic Clover stock price will rise further can target profits at the resistance levels at $22.13 and $29.03. The bears have the momentum, whereas the bulls can take profits before the stock declines further.

Bottom line: Clover looks like a short for now

Clover Health stock pulled back 13.50% on Wednesday to trade at $19.16. The downward momentum looks strong after Monday’s and Tuesday’s spike. Redditors at /WallStreetBets appear to be moving to other targets. The shift could fuel more downward movement for CLOV. 

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