When it comes to stratospheric returns, few sectors outside of the cryptocurrency ecosystem can hold a candle to quantum computers. Just look at sector specialist IonQ (IONQ). At the beginning of the fourth quarter, IONQ stock traded for a little over $8 a pop. By the end of 2024, shares ended the year at a few clips short of $42.
While the valuation boost was nothing short of remarkable, there’s a significant risk that the party could be over. Following the close of the midweek session, IONQ stock ignominiously represented one of the highlights — or I should say lowlights — of Barchart’s End of the Road screener. This readout showcases securities that suffered a downside gap after delivering an exponentially expansive rally.
Put another way, the market is signaling an abrupt cessation to the uptrend. Still, could this be interpreted as a contrarian indicator? Though it’s a tempting thought, the empirical data doesn’t offer the most encouraging forecast.
True, the negative catalyst that caused a panic in IONQ stock and other quantum computing names deserves careful context. Nvidia (NVDA) CEO Jensen Huang, during the company’s analyst day, remarked that the practical applications for quantum computers could be between 15 to 30 years away. If so, investors are paying a rich premium for earnings that might only materialize decades from now.
In a society and an investment ecosystem that has favored a get-rich-quick mentality, Huang’s words poured ice-cold water on the quantum feeding frenzy. Still, as mentioned earlier, the red ink could give rise to the buy-the-dip sentiment.
If you’re thinking about speculating on the long side, you’ll probably need to think quickly — and in a short-term framework.
Statistical Trends Don’t Quite Favor IONQ Stock
Since January 2021, IONQ stock has been traded for 209 weeks. Out of this figure, 94 weeks (or 45%) resulted in a positive return, defined as the percentage difference between Monday’s opening price and Friday’s close. Most weeks (or 111) saw a downturn, while there were four weeks that saw a perfectly flat return. Thus, on a sequential basis, IONQ stock carries a negative bias.
However, the fear-greed continuum isn’t consistent across market cycles. For popular securities, it’s not unusual for speculators to buy the blood on the streets. That appears to be the case for IONQ stock.
During the aforementioned time period, there have been 32 times when IONQ suffered a weekly loss of 10% or worse. Out of this tally, 18 instances saw shares swing higher four weeks out, yielding odds of 56.25%. Further, the average return during these positive responses clocks in at 30.92%.
So, why wouldn’t that be a green light? It turns out that extreme volatility scares off speculators.
Whenever IONQ stock incurred a weekly loss of 20% or worse, the equity has never recovered four weeks out. Granted, there have only been three instances when IONQ suffered a loss exceeding 20%. Therefore, we’re talking about an extremely small dataset. Nevertheless, at this rate, IONQ is on pace to suffer a one-week loss of around 27%.
Interestingly, the average post-four-week loss following a weekly dump of 20%-plus is only 7.62%. This surprisingly modest bout of red ink suggests that in the subsequent week or two weeks, a dead-cat bounce often materializes. However, a month on, the weak-handed investors that caused the bounce quickly lose hope.
In other words, the Barchart screener might be onto something. It really could be the end of the road.
A Bear Put Spread Beckons
Given the possibility of a dead-cat bounce next week, the most intrepid of speculators may consider a bull call spread for the options chain expiring Jan. 17. If I had to speculate, I would probably aim for the 30/32 spread (buy the $30 call, simultaneously sell the $32 call). The idea is that IONQ stock may reach for the next logical resistance line.
Statistically, though, over the next four weeks, IONQ carries a greater risk of falling to below $28 (assuming an end-of-week price of $30). That means the 34.50/28 bear put spread for the options chain expiring Feb. 7 is awfully enticing.
For those who really want to launch a banzai bear attack, gamblers may consider the longshot 12.50/10 bear put spread which expires April 17 of this year. Such a trade assumes an erasure of the quantum rally that began in the fourth quarter, which while aggressive isn’t completely irrational.
