Chimera Investment Corp. at all-time lows: Buy or avoid?

Chimera Investment Corporation (NYSE:CIM) has underperformed most mortgage REITs over the past year, with its stock reaching an all-time low below $11.50 as of May 24, 2024. This decline reflects a challenging environment for mortgage REITs, driven by rising interest rates and economic uncertainties.

In its recent financial report for Q1 2024, Chimera posted a GAAP net income of $0.45 per diluted common share, alongside a GAAP book value of $7.11 per share. The company reported net interest income of $65.11 million, a slight decrease compared to the previous year.

Despite these figures, Chimera’s earnings available for distribution fell short of expectations at $0.12 per share, reflecting ongoing pressure on its profit margins. This decline in earnings underscores the impact of increased interest rates and the broader economic conditions that have been challenging for mortgage REITs.

Struggling for stability: Chimera’s battle against the tide

Chimera has been proactive in managing its portfolio amidst these headwinds. The company has strategically invested in subordinated tranches of new mortgage securitizations and residential transition loans, totaling approximately $128 million.

These investments are aimed at providing accretive returns while preserving liquidity for future opportunities. Furthermore, Chimera’s leverage strategy, which involves the use of securitized debt collateralized by non-agency mortgage-backed securities, has been a crucial element in its efforts to navigate the volatile interest rate environment.

Despite these efforts, the stock’s decline underscores investor concerns over the broader economic challenges facing Chimera. The bearish sentiment is fueled by disappointing earnings and the uncertain macroeconomic outlook. The sustainability of the company’s dividend yield remains a critical concern for investors.

Given this backdrop, it’s essential to consider whether Chimera's current stock price presents a buying opportunity or if investors should avoid it. The company's stabilization efforts and strategic investments suggest potential for recovery. However, persistent macroeconomic headwinds and margin pressures warrant caution.

Now, let's see what the charts have to say. In the following section, we'll explore the stock's performance trends, support and resistance levels, and potential future movements.

Bear’s playground: How low can Chimera go?

Chimera's long-term charts depict a relentless downtrend that began following the COVID crash in March 2020. During that period, the stock plummeted from above $65 to below $20. Though there was a brief recovery that lifted it close to $50 by November 2021, this bounce-back was short-lived.

CIM chart by TradingView
Within a few months, Chimera relinquished all its gains, breaking below $15. From September 2022, the stock traded in a range between $14 and $20 for over a year. In February this year, it broke below the support of this range and has since struggled to trade above $14.50. Currently, the stock remains firmly under the control of bears.

Investors and traders bullish on the REIT should avoid buying the stock unless it climbs back above $14.50. For those looking to short, current levels present an opportunity, with a stop loss set just a few cents above $14.50. If the downtrend continues, the stock could touch $8 in the near future, where profits can be booked.