UPST Upstart Analysis, February 2022

January 26th,  2022

$UPST Upstart

Not really sure why, but I am absolutely loving this chart and this chart setup. I see a few things here and I will explain them in detail in this post.

Summary: 

  • Upstart is currently profitable and is experiencing triple-digit revenue and earnings growth.
  • Upstart’s business model could have huge margins and the potential market for Upstart’s products and services are huge.
  • Upstart Holdings, Inc. operates a cloud-based artificial intelligence (AI) lending platform. The company’s platform aggregates consumer demand for loans and connects it to its network of the company’s AI-enabled bank partners. Its platform connects consumers, banks, and institutional investors through a shared AI lending platform.
  • These contracts with banks typically have 12-month terms and automatically renew.
  • Upstart generated $800 million of revenue in 2021, blowing away its initial estimate of $500 million.
  • Upstart dealership lending has increased from 91 in Q3 2020 to 291 in Q4 of 2021.

Upstart business model and AI software offer 75% fewer defaults rates than traditional bank loans and have 173% more approvals.

The combination of these puts the company in a great position to capitalize on the growing demand for personal loans.

As well not to mention that interest rate hikes are set to be the theme of 2022.

Technical Analysis

I noticed;

  1. Green Hammer on January 24th, 2022
  2. We are currently in a falling wedge pattern that has been formed.
  3. MACD has been increasing over time.

The green hammer

Here is how the hammer looked on January 24th. I really like this setup due to it forming at the bottom of the support trend line. Usually, when I see something like this, it is a strong indicator that the price is getting ready to push higher into the upper resistance trendline.

In this case, going from $70 to $105

How to trade a Hammer Pattern

  • This candlestick pattern is formed when the price for that time frame moves significantly lower than what the open price was, but then rallies higher before market close.
  • If a hammer pattern is present after a downtrend,  we do anticipate for price action to become bullish and start to move higher.
  • You can read more here if you want

Falling Wedge Pattern

How to Trade the Falling Wedge Pattern:

  1. Reversal, bullish
  2. Formation
    • The trendlines of this pattern converge, with both being slanted in a downward direction as the price is trading in a downtrend.
    • The upper resistance trendline should have a sharper slope than the support level in the wedge construction.
    • When the lower (or support) trendline is clearly flattered as the pattern forms, it signals that selling pressure is weakening, as sellers have trouble pushing the price down.
    • This indicates that the price will start to go up.
  3. How to trade
    • The buy signal is formed when the price breaks through the upper resistance line.
    • This breakout move should be on heavier volume.

Here is the strategy I am using:

  • Have at least 100 shares.
  • I got in early, the buy signal for long-term holds should be once we get above $106. Look at the chart above.
  • Sell 1 cover call –
    • $115 strike for 2/25/ 2022
    • Collect $722.5 in premium.
  • We want the stock price to stay above our entry price but below $115 ( we want to keep the shares )
  • My first price target will be $115
  • If the stock price falls below $84.14 – we will start to lose money – this is our risk.
    • $115 strike for 2/25/ 2022

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January 31st Update

Today was finally broke above the falling wedge and stock price is currently trading around $109 since market close.

I do expect momentum to continue to flow into this name.

Taking a close look at Unusual Whale‘s Flow for Upstart :

I noticed that there was a large amount flow something tells me this isn’t bearish… but bullish… why would anyone in the right mind sell puts @ $200 / $210 when stock is trading at @ $100 / 90?

 

If you exclude all in the deep in the money option contracts,  you will see that whales are loading up for $400 call for January of next year.

 

 

Today’s option flow reaffirms my long-term position and I see the stock price continue to go up.

 

 

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February 9th, 2022 Update

 

Upstart’s price action has been very slow these past couple of days, just as the overall market has been.

However, the technicals still remain very bullish as we head into earnings next week.  I have taken a very slow and steady approach as I see that price action has been consolidating around the $100 – $95 price levels. We have created an upward trend line support level. As highlighted below.

 

Upstart 2hour time frame

 

I went ahead and add what I could potentially see the upper resistance to be and it looks like a rising wedge might be in order. Essentially we want to see the price push higher above the current $113.25 resistance level with volume. This should push the price higher to $119.82 / $120.

Key levels that you must absolutely know:

$102.5, $113.21, $119.82, and whatever your 14 day and 30-day simple moving averages are on the 2-hour time frame.

 

I went ahead and review the options flow using our Unusual Whale Tool and here is what I found

  • 12% of the recent option volume are put while 87% have been calls
  • In terms of premium, 57.4% of the premium has been bullish
  • The most action has been between $105 and $115 calls and puts.

 

So now what?

  1. Know your entry
  2. Know your price target
  3. Know your stop loss
  4. Look at what weekly contracts you want to trade. I like the call options +$5 above my entry price.
  5. Be ready. Be quick. Be disciplined.