Angie's: For Your Short List

04/16/2014 7:00 am EST


Andrea Kramer

Associate Editor, Schaeffer's Investment Research, Inc.

Tech stocks and momentum names have blazed a path lower recently, and social networking stocks have been among the hardest hit, suggests Andrea Kramer, analyst with Schaeffer Investment Research.

Nevertheless, the sector remains surrounded by optimism, leaving the door wide open for a mass exodus of bulls to exacerbate the selling pressure of late.

Of the 12 social networking names that we track, not one is trading above its 80-day moving average. In the same vein, the average year-to-date stock return among components is negative 15.3%—the worst of the 37 sectors we track. Still, 55% of analysts maintain "buy" or better endorsements, up from 48% a year earlier.

One of the SOCL components that exemplifies technical weakness amid bullish sentiment is online reviewer Angie's List (ANGI). The shares have lost more than 50% of their value since peaking north of $28 in mid-July, pressured lower by their 10-week and 20-week moving averages.

In fact, these trendlines just made a bearish cross—often a signal of intermediate-term weakness. Now, ANGI—which tagged a new annual low of $11.81 late last month—is struggling to stay atop the $12 level, which has acted as both support and resistance during the past two years.

Despite underperforming the broader S&P 500 Index (SPX) by nearly 24 percentage points during the past two months, ANGI still has plenty of fans on the Street. The stock boasts seven "strong buys" and one "buy" endorsement from analysts, compared to seven lukewarm "holds" and not a single "sell."

Meanwhile, the consensus 12-month price target of $19.20 represents expected upside of almost 58% from the security's current perch at $12.18. A flood of downgrades and/or price-target cuts could translate into contrarian headwinds for ANGI.

Speculators have bought to open more than three ANGI calls for every put during the past two weeks. Even more telling, this ratio stands higher than 84% of all other readings from the past year, pointing to a healthier-than-usual appetite for bullish bets of late. A reversal in sentiment among options players could also weigh on the underperformer.

Traders interested in wagering on more downside for Angie's List might consider buying the in-the-money August 17.50 put, which was last asked at $6.30.

However, with the company on tap to report earnings after the close on Wednesday, April 23, more conservative traders could hedge their bets by simultaneously selling to open the August 10 put, which was last bid at $1.00.

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