MercadoLibre (NASDAQ:) is one of Latin America's largest online retail platforms. The Argentine e-tailer saw its business boom during lockdowns as people hid in place and shopped from home.
In 2020, MELI's gross trading volume (GMV) nearly doubled and total payment volume (TPV) increased by more than 3/4. Even during , when the economy reopened and recovered – in favor of cyclical companies at the expense of technology companies – MercadoLibre continued to grow. GMV grew nearly a quarter to $7.3 billion, and TPV catapulted 44% to $20.9 billion.
These rising operational metrics translated into impressive revenue performance. Net sales rose 86.6% to $4.9 billion in the first nine months of the year. Net income exploded, nearly tripling, to $417.4 million from $152.8 million.
All these activities put the company on track to become the leading e-commerce company in Latin America. As of April this year, the company had the most regional online visitors, nearly 668 million visits per month, more than three times the number of visits by Latam residents to Amazon (NASDAQ:).
With the fundamentals in such good shape, why have MercadoLibre's technical features been brought up, indicating that the stock is about to take a lower leg again?
Bulls have been trying to keep the price within the rebound boundaries since Dec. 6, but the odds are against them. The price has already fallen below the limits of the ascending flag, right where it has reached the bottom of the descending channel since its September 2 peak.
The preceding price action had all the telltale signs of a bearish, bullish flag. The previous move included a breathtaking 40% drop in less than a month, between November 9 and December 6. This activity was accompanied by increasing volume, which dried up amid the rising churn that followed signs of a changing of the guard from the start, satiating and tired bulls to fresh, hungry bears ready to lead the next leg down.
Oh, and adding to the mix, the 50 DMA fell below the 200 DMA leading to a Death Cross.
Besides, this isn't just any ordinary Death Cross. The 50 DMA gained on the 200 DMA even as it fell, adding to the bearishness. There is more.
The falling channel formed the right side of a weekly double top, which cut through the 50 WMA. Also, the flag is a return move, retesting the neckline along with the bottom of the channel and the 100 WMA.
Bears are cashing in, decreasing supply and increasing demand, while bidding the price up to cover a return of securities to their brokers. Once that is over, we expect the stock to plummet and likely lose up to half its value based on historical statistics related to this type of trading pattern. ]Conservative traders should wait for the price to drop below 200 WMA before rallying to find resistance.
Moderate traders would wait for the weekly close to confirm the current price.
Aggressive traders can short at will, provided they do so on a plan that suits their needs. Here is an example of the basic components of a coherent plan:
Trade sample
Admission: $1200
Stop Loss: $1300
Risk: $100
Target: $900
Reward: $300
Risk Reward Ratio: 1:3
Author's Note: We do not engage in fortune telling. Instead, we weigh evidence based on past statistical trading, following the principles of technical analysis. We're not saying this is what's going to happen. Instead, we suggest that this is most likely to happen.
The example only illustrates the basic requirements of a plan. However, you need to adapt a plan to address your timing, budget and temperament to increase your overall trading prowess and statistical success. This does not happen overnight. You can use our sample for educational purposes, not for profit, or you will get neither. Guaranteed. And no money back.
