Why One Needs Cautious Optimism When Trading Renren Inc [RENN]

Renren Inc [NYSE: RENN] is a top performer over the past month. The stock has no big news but is largely price action-driven. All through September, the stock has been on a V-shaped recovery. At the moment, it is trading at a key resistance level at around $3.83. At this level, the stock can go in either direction. If it breaks the $3.83 to $4 price level, it would be an indicator that bulls are in charge and could see the stock test new highs.

In the near-term, the stock could test a high of $6, which is a multi-month resistance level for the stock. On the flip side, if the stock fails to break the $4 resistance level, then there is a chance that it could be headed for a correction in the near-term.  The next support level for this stock is at around $1. Whichever direction the stock takes is dependent on market factors and the company’s internal fundamentals.

Bullish factors for stock

 The factors that could see this stock push through resistance are mainly market related. Renren is based in China, one of the largest markets in the world, and though it has been hit by the COVID-19 pandemic, the economy is on a rebound. 

Recent data shows that China’s manufacturing, exports, and consumer spending are on a rebound. Given that Renren Inc’s main market is China, it stands to see an increase in its revenues in the Chinese domestic market. This is likely to create expectations of an increase in revenue in coming quarters. This could also see investors bid up the stock price in anticipation of an increase in value. As the market-wide fundamentals get better, so will the potential value of this stock.

Bearish factors

While the market factors point to a possible sustained upside momentum, the company has some internal issues that could see it turn bearish. One of them is that the company recently announced that it had defaulted on debt.

Essentially this means it has some serious cash flow issues that may affect its ability to operate to its optimum.  The company has also announced in August that the subsidiary that gives it most of its revenues from was no longer in operation. This means the stock value has been rising while revenues drop sharply.

Renren Inc

Renren Inc is a used automobiles products company. It is based in Beijing, China.