I want to say in advance: I don’t know if Medical Properties Trust, Inc. (MWP) the stock has hit a big bottom in the fourth quarter of 2023, or if new lows come again early next year. I’m not doing one long call on the stock.
This article focuses on what I believe are the high chances for a nice price bump, following the pattern of an uptick in REITs generally since October. Some chart indicators show the ability to gain 10% to 30% quickly from the early morning trading price on Monday (December 4, 2023) around $5.20. In addition, the company is going ex-dividend on 6 December. So I can capture a roughly 3% yield ($0.15 per share) to hold my position going forward.
It is honestly a technical chart suggestion, where I expect the broad short position in the stock to become restless, with some players covering (buying). My reading of the momentum indicator pattern being sold is exhausted and some sort of upside move (perhaps a sharp one) could push the price to $7+ per share from the low water level of $4.04 weeks ago. Let me explain why.
Large short position
Fueling a sharp rally is the monster short interest position in Medical Properties. Last month it set a new record at 33% of pre-sold flows in the market with borrowed shares. Bears are counting on the downtrend in prices continuing to take a profit. But the price is now roughly the same as it was two months ago, with the risk of an upward zigzag becoming more apparent by the day for bearish traders.
The formula for a short coverage rally is: a good news is given by the company, or a large broker improves the valuation of the name, bringing new buyers to increase the price for several days. Then the shorts get edgy and start to cover up. Their increased buying power creates an imbalance in day trading supply/demand. This imbalance creates the necessity for higher prices to find supply (sellers) to complete the hedging transactions. Sometimes, this short coverage process gets messy.
Great imbalances like fable GameStop (GME) peak of 2020-21 are rare. However, a short squeeze on Medical Properties is a real possibility, as it has traded in similar formations since 2006. If the shorts buy soon, a price of $7 or $8 is certainly within the realm of possibility (a double lower than $4.04 with the quarterly dividend counted), given MPW’s extremely low valuation and price slide from $24 in early 2022.
In the 18-month daily trading price action and volume chart below, I’m highlighting some of the recent positive changes.
In many respects, we are in the same place, as the price of the last two occasions was able to rise again above its 50-day moving average (circled in green). And, if I’m right, another corrective move toward the 200-day moving average ($7.30 today) is on the way. My target price area is blocked in red.
In the balance volume has been flat for the past 8 weeks, which is usually a sign of balance between aggressive buyers and sellers, a condition that hasn’t existed since July.
After reaching a major trend, the oversold position on the 14-day Average direction index of 60+ in September, selling pressure and momentum appear to have been in remission for months. Plus, 14 days Ease of Movement the calculation (looking at dollar volumes to move price) has turned positive for the first time since July.
The combination and timing of the reversals in the above indicators explains a stock trying to bottom out in price. The debate I’m having is whether Medical Properties Trust has spelled a long-term bottom or could be jumping for a spell. (I’m 50/50 for an answer in my search.)
Using my experience in similar short squeeze opportunities as a guide, I’m preparing for an increase in quotes to $7 or $8 in late January. In the conditions ea The January effect bounce, where the biggest losers of last year’s spring surge once the tax loss sale ends, MPW could be a big winner over the next 5-10 weeks.
How to participate in the Top Side: I bought a regular long position, with the intention of reassessing my short-term buy thesis every day going forward. I will receive the next quarterly dividend of $0.15. My plan is to sell half of my position in the upper $6 to low $7 range. That way, if the decline resumes, I have locked in some quick profits at the minimum. Conversely, if the stock quote continues higher, to a number much higher than $8, I will participate in my brokerage account with my half-sized shares. Such is my no-nonsense strategy for catching the bounce.
Could the lower stocks come back first, before any price increases, leaving me with a loss? Sure, but I put the odds of this event playing out at less than 25%. My guess is that another move to $4 or lower is likely to be the result of a general pullback on Wall Street for many stocks. I am already holding protection for this option on my entire account value.
I am staying with a 12-month evaluation of Neutral/Hold for the Medical Property Trust. If you’re a long-term bull, you should be looking for lower interest rates (borrowing costs for REITs) and better economic growth overall. If this is our future in 2024, the November MPW low could be “the bottom”.
Thanks for reading. Please consider this article a first step in your due diligence process. Before making any trades, consultation with an experienced registered investment advisor is recommended.