DQ correction for short term profit taking?

20. Okt. 2020

I've been long on DQ since 140 and I feel like there's a strong chance of a short term price correction to resistance levels of around 200 in the next couple days. Momentum has been ridiculous, fueled mostly by hype, since their earnings are really nothing too special / worthy of their PE. I'm seeing strong bearish divergence on the daily RSI on today's high (see chart). Also, MACD is crossing below the signal on the lower timeframes (4h). I can see myself closing my position, and buying any dip that comes up. What worries me more in terms of medium-term prospects is their consistency in beating EPS estimates, coupled with the boatload of hype investors .Benjamin Graham points out how companies that have a record of beating EPS estimates get their prices dragged through the mud as soon as they falter in meeting those estimates, regardless of any change in intrinsic value. I'm not going to try to predict anything about their Q3, but if they can't keep up their record of beating EPS estimates, this quarter or in the next ones, you can probably expect a sharp pullback. Long term investors shouldn't be too concerned, and maybe buy the (potential) dip if they feel the intrinsic value is still there.

I don't want to seem too pessimistic about DQ, but analysts are getting super bullish on their estimates, raising Q4 EPS estimates by 50% in the last three months. Again, I think DQ is a great company, but I'm not sure these estimates are realistic.