I Am Riding The Medical Properties Trust Bounce (Technical Analysis) (MWP)

I want to say upfront: I don’t know if Medical Properties Trust, Inc. (MWP) stock has outlined a major bottom in Q4 2023, or if new lows are coming again early next year. I am not making a long-term call on the shares.

This article is focusing on what I believe are high odds of a decent price bounce, following the pattern of a relief rally in REITs generally since October. Some chart indications are pointing to the ability to earn 10% to 30% quickly off the trading price early Monday morning (December 4th, 2023) around $5.20. In addition, the company is going ex-dividend on December 6th. So, I can capture a rough 3% yield ($0.15 per share) for holding my position upfront.

It’s honestly a technical chart suggestion, where I expect the extensive short position in shares to get antsy, with some players covering (buying). My readout of the momentum indicator pattern is selling has been exhausted, and some sort of up-move (perhaps a sharp one) could push price back to $7+ a share from the low-water mark of $4.04 weeks ago. Let me explain why.

Large Short Position

The fuel for a sharp rally is the monster short interest position in Medical Properties. Last month set a new record at 33% of float pre-sold into the market with borrowed shares. Bears are counting on the price downtrend continuing to earn a profit. But, price is now about the same as two months ago, with the risk of an upward zigzag becoming more apparent by the day to bearish traders.

The formula for a short covering rally is: good news is put out by the company, or a major brokerage upgrades their rating of the name, bringing in new buyers to pull price higher for a few days. Then, shorts get nervous and begin to cover. Their added buying power creates an imbalance in daily trading supply/demand. This imbalance creates the necessity for higher pricing to find supply (sellers) to complete the covering transactions. Sometimes, this short covering process gets messy.

Huge imbalances like the fabled GameStop (GME) spike of 2020-21 are rare. However, a short squeeze in Medical Properties is a real possibility, having traded similar setups since 2006. If shorts panic-buy soon, a $7 or $8 price is definitely within the realm of possibilities (a double off the $4.04 lows with the quarterly dividend counted), given MPW’s ultra-low valuation and price slide from $24 in early 2022.

Technical Analysis

On the 18-month chart of daily price and volume trading action below, I am highlighting some of the positive momentum changes of late.

In many respects we are located in the same spot, as the last two instances price was able to rise back above its 50-day moving average (circled in green). And, if I am right, another retracement move to the 200-day moving average ($7.30 today) is approaching. My target price zone is blocked in red.

On Balance Volume has been flat over the last 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 huge trend oversold position on the 14-day Average Directional Index of 60+ in September, selling pressure and momentum appears to have been in remission for months. Plus, the 14-day Ease of Movement calculation (looking at dollar volumes to move price) has turned positive for the first time since July.

The combination and timing of turns in the above indicators explains a stock trying to bottom in price. The debate I am having is whether Medical Properties Trust has outlined a long-term bottom or might it just be bouncing for a spell. (I am kind of 50/50 for an answer in my research.)

Final Thoughts

Using my experience in similar short-squeeze opportunities as a guide, I am preparing for a quote jump to $7 or $8 into the end of January. In terms of a January Effect bounce, where the greatest losers of the prior year spring higher once tax-loss selling ends, MPW could be a big winner over the next 5-10 weeks.

How to participate on the upside: I purchased a regular long position, with a goal of reevaluating my short-term buy thesis each day going forward. I will get the upcoming $0.15 quarterly dividend. My plan is to sell half of my position in the upper $6 to low $7 price range. That way, if the downturn resumes, I have locked in some quick gains at a minimum. Conversely, if the stock quote continues higher, to a number well above $8, I will participate in my brokerage account with my half-sized stake. Such is my uncommitted bull strategy to capture the bounce.

Could shares reverse lower first, before any rise in price, leaving me with losses? Sure, but I put the odds of this event playing out at less than 25%. My thinking is another swing back to $4 or lower would likely be the result of an overall drawdown on Wall Street for many equities. I am already holding hedges for that possibility on my whole account value.

I am sticking with a 12-month rating of Neutral/Hold for Medical Properties Trust. If you are a long-term bull, you have to be rooting for lower interest rates (borrowing costs for REITs) and better economic growth overall. If this is our future in 2024, MPW’s November low may prove “the” bottom.

Thanks for reading. Please consider this article a first step in your due diligence process. Consulting with a registered and experienced investment advisor is recommended before making any trade.