Let's Get a 'Handle' on Coinbase

Too Late for Love

Standing by the trapdoor aware of me and you

Are the actor and the clown, they're waiting for their cue

And there's a lady over there, she's acting pretty cool

but when it comes to playing life, she always plays the fool

But it's too late, too late, too late

Too late for love

Too late, too late, it's too late

Too late

- Lange, Clark, Allen, Savage, Elliott, Willis (Def Leppard) 1983

Is it Too Late?

Look at the run Coinbase COIN has made. As crypto-currencies become more and more mainstream. As stablecoins steal the headlines and their seeming ascendance toward becoming if not "digital dollars," then something close to it. We may not be all that far away from something in the crypto universe that is divisible, can serve as a store of value and can serve as a medium of exchange.

Coinbase stands to benefit from all of this really rapid development in what is and what is not money and in what is and what is not a digital asset or commodity. Coinbase supports trading for several stablecoins including USDC and USDT (Tether). While USDC was initially launched by a joint venture between Circle CRCL and Coinbase, Circle is the issuer of and has full governance over USDC.

Coinbase closed at $350.49 on Monday evening after peaking at $382 last Thursday. The stock bottomed at $142.58 on April 8. That's a run of 168% through to top followed by a 0.8% selloff. Is that enough of a discount for those who have not been involved to do so? Is that enough of a discount for those that correctly read the tea leaves to add, even though they likely have a much lower net basis? Many traders and investors struggle with violating their net basis and subsequently wind up with large gains on long positions that have been incorrectly sized.

One thing is clear is that Coinbase is no longer dependent upon the fortunes of Bitcoin. Bitcoin, in dollar terms, has remained close to all-time highs (in dollar terms) for weeks, but peaked back in mid-May. The shares of Coinbase, quite obviously also in dollar-terms, was up 42% for the month of June.

Earnings

Coinbase is expected to report late the first week of August. Wall Street is looking for an unadjusted earnings per share of $1.39 on revenue of $1.66 billion. While this would "only" amount to year-over-year revenue growth of 14% to 15%, the earnings per share comp stands at just $0.14, so that would be a huge jump in profitability. Let's take a look at the charts...

The Charts​

Look at that Inverted head & shoulders at the bottom. I stand and salute any of you who recognized this for what it was in real-time. I, for one, did not. ​Now, at the top of the chart, it appears to me that the stock may be trying to add a handle to a cup pattern, which would be a new or actually a renewal of a likely bullish setup.

​See the cup pattern now? The right side, in my opinion, apexed too high for this to turn into a double-top pattern of bearish reversal. 

The stock has already started to add that handle, which is how a stock in a bullish trend consolidates coming out of this type of pattern before continuing on trend.

Bottom Line

I would love to initiate COIN somewhere in this dip. We, however, really never know how deep these handles can be and given the parabolic move made by the stock over the second half of June, this one could end up rather deep before the profit takers reload.

I would like to take my first nibble close to the stock's 21-day exponential moving average, which stands at $297.0, but is rising rapidly. That first nibble will be careful as there is a chance that if the stock goes that far, it could test its 50-day SMA as well. A trader willing to take on some risk and looking to get paid to wait could sell (write) $300 COIN puts expiring on Aug. 8 for a rough $10, depending on the market at the time. That might be worth it.