SoFi's Flying Higher, and So Is the Hype

We profiled SoFi Technologies SOFI on June 13, less than a month ago. Our buy recommendation for SoFi came hot on the heels of a three-month high for the San Francisco-based digital financial services company.

Since then, SoFi has rocketed higher for a 33% gain. Investors are asking, can this stock maintain its gains and soar even higher, or should traders take a cautious approach to SoFi?

What’s the Buzz?

SoFi has excited investors by offering access to private market funds from asset management firms, but is that excitement justified? The pitch is that by gaining access to asset management companies like Liberty Street Advisors and Cashmere, investors could potentially participate indirectly in privately held shares of companies like SpaceX and OpenAI.

Frankly, I’m skeptical about the level of participation one can gain via this method. I’m not trying to throw cold water on SoFi, but I do think retail investors should manage their expectations. But with the market at all-time highs and seemingly no end to the rally in sight, managing expectations isn’t exactly the strong suit of the average retail investor.

“SoFi is expanding alternative investment opportunities for a new generation of investors,” said SoFi CEO Anthony Noto. New accounts can gain exposure to the funds with as little as $10.

SoFi’s Bullish Chart

There are three features to SoFi’s chart that I find attractive.

First is the accelerating arc (black dotted line) that reveals SoFi’s current trajectory. Some traders refer to this as a "parabolic curve," and it’s indicative of strong bullish momentum. The curve begins near our June 13 buy recommendation (green arrow). 

I'm also encouraged by the increase in volume as SoFi has rallied (shaded yellow). This is particularly encouraging as it could indicate the involvement of institutional investors.

Finally, I’m not discouraged that SoFi is overbought, according to its RSI (relative strength index) indicator. While this is counterintuitive, I like to think of RSI as a momentum indicator in this situation (circled). Last year, SoFi shares doubled in three months while its RSI was overbought (bottom left of chart).

The Bottom Line

Perhaps I’m jaded, but I get the feeling that someone with $10 who is dreaming of a windfall in SpaceX or OpenAI is about to be disappointed. This promotion seems to be more hype than substance.

At the same time, the promotion is likely to be a successful one for SoFi. Novice retail investors will be drawn in, as they might not appreciate the difference between outright ownership and indirect participation. Such nuances are likely to be lost in the excitement of participating in something that is seemingly unattainable. 

At the time of publication, Ponsi was long SOFI.