An explosion of retail buying triggered a 74% surge in the Geo stock price on Wednesday. Yesterday, it declined 36%. What happened, and what comes next?
GEO Group Inc closed at $7.05 -$1.75 (-19.89%).
The GEO stock price has been trending lower for the last 4 years. Six weeks ago, GEO was trading at $4.96, and 85% lower than its 2017 high of $34.32.
The fundamentals for GEO Group Inc (NYSE: GEO) have become increasingly negative recently. The Florida-based Retail Investment Trust primarily invests in North American prisons and mental health facilities.
President Joe Biden has publicly announced plans to withdraw support for the industry. Furthermore, many investment banks have followed POTUS’s lead and will no longer finance private prisons.
A failed bond sale and a recent credit downgrade from S&P have further complicated the outlook for GEO.
Short interest in the stock had risen to 38% of the publicly available float. This brought GEO to the attention of the WallStreetBets Reddit forum. The retail trading message board has been the source of several high-profile short-squeezes in 2021. This week it was GEO’s turn to get the AMC and Gamestop treatment.
GEO Technical Outlook
The daily chart shows just how explosive Wednesday’s trading was. Over 188 million shares changed hands, more than 12 times the average volume of the 3 weeks prior.
The resulting rally took the price above the resistance of an ascending trend line at $6.56. Furthermore, it left the 50-day moving average at $6.05 and the 100-day at $7.08 in its wake.
Eventually, the rally stalled 73% higher at $11.00, reversing lower, to finish the day at $8.80.
The GEO stock price continued to slide in yesterday’s session, closing the day at $7.05, below the important 100 DMA at $7.08.
It’s hard to predict what comes next. Traders on both sides will be nervously awaiting the next short interest report to see how Wednesday’s move affected positioning.
That aside, Thursdays trading does not encourage optimism.
Yesterday’s steep decline was not met with the same volume as Wednesday’s rally. This could signal one of two things.
Firstly, shorts may have covered a substantial amount of their position during Wednesday’s spike.
Secondly, retail buyers did not average down as the price dropped.
Of course, as we have seen with several beaten-down stocks recently, anything is possible. Having said that, I expect GEO may not be the success WSB is hoping for.
What Happens Next?
A close below the trend line support (previously resistance) at $646 would target the 50 DMA at $6.05. If this fails to halt the decline, it could be a very negative development for the bulls.
You would have to wonder what happens to all of the contracts bought on Wednesday at this stage. Therefore, I believe a close below $6.05 could trigger a cascade of liquidations, putting the $4.96 low in the frame.
BUT, a reversal and positive close today may keep the saga going for a bit longer. If the retail crowd can keep the squeeze going, they will be looking at the 2020 high of $18.42 as their next target.
Whichever scenario plays out, its sure to be interesting.
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GEO Stock Price Chart (Daily)
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