by Ian Harvey
June 21, 2018
PATIENCE PAYS OFF!
YOU NEED TO BE IN TO PROFIT!
Last Thursday saw shares of Chinese online entertainment company iQiyi (NASDAQ: IQ) rise dramatically, despite no meaningful news. The stock has been rocketing higher since early May, more than doubling over the past six weeks. Shares of China's leading video- streaming platform rose 22.4% last week, stretching its streak of double-digit percentage gains to four weeks in a row. The stock has now doubled over the past four weeks.
The only significant news that day was that iQiyi did announce changes to its board of directors. The company appointed Ctrip CEO Jane Jie Sun to the board as an independent director and a member of the audit committee. Dr. Haifeng Wang, senior vice president of Baidu and general manager of that company's artificial intelligence (AI) group, was also appointed to the board.
Another minor piece of news was iQiyi announced an AI programming competition aimed at video-based multimodal biometric recognition.
It appears that the share price of iQiyi is driven by investor optimism! Even though the company has suffered significant losses, and the fact that the company's gross margin is effectively zero, the market seems oblivious to this.
Friday, last week saw a slight retreat of share price; but momentum continues to build. The 61.6 million shares traded on Friday is the highest single-day volume for the stock since the day it went public in late March - iQiyi's trading volume has now increased for six weeks in a row.
A couple of other insignificant, non-game-changing pieces of news last week were…….
1. The famed filmmaker Chen Kaige will be teaming up with iQiyi on a premium online drama.
2. iQiyi announcing that Hot-Blood Dance Crew -- its street dance-themed competition show -- broke ad revenue records in the online entertainment industry is definitely encouraging news.
3. Change Plus, the online wallet that iQiyi is teaming up with aiBank to offer. It will integrate entertainment and financial services. An interesting perk here is that Change Plus customers who meet certain balance requirements will receive iQiyi's VIP membership, the premium platform that now has more than 60 million members.
Maybe, adding all these minor events together is enough of a catalyst to keep this impressive winning streak going!
Then Monday morning, this week, saw IQ up 4.4% marking a continuation of the stock's impressive June rally, after the company said it has obtained the broadcasting rights to the four golf majors.
As well, Ihor Dusaniwsky, the managing director of predictive analytics at S3 Partners, said short covering isn’t behind iQiyi’s surge. “Shorts have been selling into IQ’s rally for the past two months,” Dusaniwsky said. “The short seller’s conviction has remained steadfast even as the stock has rallied.”
Despite all the dramas facing the markets on Monday and Tuesday with the Trade War debacle, IQ has managed to maintain its footing quite well, with a bit of a drawback Tuesday afternoon. However, this was short-lived as the stock came roaring back yesterday to close at $44.38.
This is where Stock-Options-Made Easy “Cut-To-The-Chase” Members will need to decide if it is time to exit the trade that was recommended last Thursday.
The OPTION TRADE: Buy IQ JULY 20 2018 40.000 CALL at approximately $2.10 TO $2.20 each. Sell price is left to your own judgment.
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Again, DECISION TIME CALLS!
Maybe looking at IQ’s continuing momentum is important in making a decision to exit or not. IQ stock has gone on to log a massive return of 124%. A big part of the move has been the change in the narrative of IQ. Investors now see the company as China's version of Netflix, Inc. (NASDAQ: NFLX), which has a market cap of $170 billion. IQ stock, on the other hand, has a value of $30 billion. Maybe the rally hasn’t finished as yet based on the following…..
China is seeing that the online entertainment industry is one of the hottest in the country; and the key driver is video. As stated in the iQiyi IPO prospectus, "Internet users in China are increasingly focused on the quality and originality of video content and are willing to pay for premium content;” playing a major part in promoting the strengths of the company.
Over the years, iQiyi has invested substantial amounts into creating original content; and has been able to build the right teams to create compelling content.
Also, the company has been smart with its technology. To this end, it has leveraged artificial intelligence and deep learning to better target content offerings.
And, in the latest quarter iQiyi showed a nice pick-up in revenue growth. Total revenues jumped by 57% to $776.6 million. Consider that the company's business model includes two main sources - advertising and membership services. Both produced standout results in the quarter.
So, has iQiyi reached its Peak…..?
IQ stock has had a big rally; it now has a market cap close to $27.5 billion, which is more than double where it stood earlier this year, suggesting a platform with strong subscriber growth. iQiyi has made a jump - quarter-over-quarter, of more than 20% in subscribers.
Before IQ stock makes its big rallies, it tends to consolidate its prior move first – even though the phases may be brief. However, some believe that IQ stock could be showing signs of exhaustion, recently having an RSI of 90, and at the moment an RSI of 85. However, investors seem to be ignoring any negative aspects and are jumping on the momentum train, therefore, continuing to push the stock price higher.
As I always say “Greed Can Be The Undoing Of A Good Profit”
It is an unknown at this stage as to how far the rally can and will continue!
If you are not a part of the “Cut-to-the-Chase” membership and wish to be.……… SIGN IN HERE
What To Do Now…….
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