Growth snaps back

  • ESTC up more than 15% after 3-week, 43% decline
  • Perfect storm of bearish factors, or overdue correction?
  • Heavy options volume (mostly calls) on Wednesday

As noted in “Have volatility, will travel,” while some stocks—travel and leisure names, for instance—fell more than others on news of the COVID Omicron variant, few areas of the market were left untouched.

And some may have faced additional bearish pressures. Many growth stocks, for example, also suffered larger-than-average losses, as investors appeared to make another shift toward value amid fears that inflation may provide headwinds for growth.1 For instance, analytics software company Elastic (ESTC), which was sitting on a 28% year-to-date gain and record high three weeks ago, yesterday found itself more than 10% in the red for the year after a 43% correction:

Chart 1: Elastic (ESTC), 4/3/20–12/8/21. Elastic (ESTC) price chart. Bounced 18% after sell-off.

Source: Power E*TRADE (For illustrative purposes. Not a recommendation.)

The move—which ultimately dropped ESTC close to the implied support of its March and May lows (roughly $98–$102)—climaxed with a sharp sell-off on December 1-2 when the company released estimate-topping earnings numbers.2

Whether investors were impatient for ESTC to turn the corner to per-share profitability or the stock was simply caught up in a shift away from growth—or some of both—is impossible to know. As of yesterday, though, ESTC still had an average Street analyst target of $185.823—around 45% above yesterday’s high. Hedge funds also held as much of the stock as they have over the past two-and-a-half years, according to SEC filings.4

Those factors may not register with short-term traders, but ESTC—like many other stocks that sold off sharply the past couple of weeks—has rebounded in recent days as markets digested the Omicron news. With ESTC’s two-day return topping 17% on Wednesday, options volume was nearly 10 times average, with 48 times more call volume than put volume:

Chart 2: LiveAction scan: Highest Call-Put Ratio, 12/8/21. Unusual options activity. Call volume 48 times put volume.

Source: Power E*TRADE (For illustrative purposes. Not a recommendation.)

The broad market’s trajectory (and specifically, the appetite for growth stocks) will likely play a key role in determining the longer-term path of ESTC and similar tech names, but traders operating on a shorter time horizon may continue to be interested in the stocks that were most heavily discounted in the recent sell-off—perhaps especially those that appear to be attracting attention beneath the surface in the options market.

Market Mover Update: Planet Fitness (PLNT) gained 3.5% on Wednesday to extend its rebound off its December 1 low to more than 13%.

Today’s numbers include (all times ET): Weekly Jobless Claims (8:30 a.m.), Preliminary Wholesale Inventories (10 a.m.).

Today’s earnings include: Lululemon (LULU), Broadcom (AVGO), Chewy (CHWY), Costco (COST).


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1 Fortune. Inflation could end tech stocks’ winning streak in 2022—and pump up these stocks instead. 12/1/21.
2 Elastic N.V. (ESTC) Earnings. 12/8/21.
3 Elastic Stock Forecast & Price Targets. 12/8/21.
4 Elastic NV (ESTC) 13F Metrics. 12/6/21.

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