It looks like one of our stocks may be falling prey to a change in regulatory action by the Chinese government. Yirendai (YRD) is a peer-to-peer (P2P) lender that makes connections between people needing loans and individuals who have money to lend. The stock has been a big mover since the beginning of August, but in the past four days it has dropped with increasing speed on increasing volume. The stock is still above its 50-day moving average, but the downtrend is too severe to ignore.
The only explanation we can find for this correction is a story that cites a change in government policy that limits the amount of money that can be lent by P2P lenders. Even though most of Yirendai’s loans are actually quite small, any hint of regulatory tightening by the government will have an outsized effect on investor perception of the target industry.
We recommend selling YRD and holding the cash. Depending on the stock’s action tomorrow, we’ll likely exit the position with a nice profit.
Sell Yirendai (YRD).