Here’s you plan for trading FitBit (FIT) around earnings. (October 31, 2015)
FIT
I want to talk to you about Fitbit ( NYSE:FIT ). The company reports earnings after hours on Monday, so you’ve got one more day to make a decision as far as whether you want to buy this or not. As I’m looking at the chart, and this is it; we can go to a weekly chart and all you see is this thing compressed so that doesn’t work too well. This is all the data you have to work with. The thing is, the stock has been trending in a series of higher lows and then lower highs. So we’ve got a little bit of a volatility squeeze here and the stock is really set up for an explosive move. The challenge is, which way?
If there was no such thing as an earnings report on Monday afternoon I would look at this stock and I would say you want to buy this stock. The volume was higher than average, the stock has been in a squeeze. It’s above this 50-day moving average, which it hasn’t been for a while. Now it has been for a while, in this little trading box here. So truly the path of least resistance is up. The stock looks like it’s breaking out. This level of resistance here doesn’t really bother me. I think it’s kind of a canard to think that it’s relevant. And the reason is: because yes we have this, yes we have this, 41.00 is resistance, don’t buy until it breaks out above here. Well the problem is, we’ve got earnings on Monday evening so this stuff doesn’t matter. The numbers are what’s going to matter.
So here’s my suggestion, if you’re looking to get into Fitbit ( NYSE:FIT ) I think the way to do it is to take a half of a position; whatever your normal position size is, take half. But just make sure that you’re willing to make a commitment to the company. I’m not saying whether you should or you shouldn’t. My role here is not to tell you what to buy or what to sell. Frankly, it’s to tell you how to do it, how to execute your decision. So if you want to buy Fitbit ( NYSE:FIT ), look, just a few months ago this thing was down below $31.00. Don’t think that it can’t go there again if they report dismal numbers. It can. It ABSOLUTELY can.
So you have to be ready for that. You take a small position now and figure, “All right, if they report great earnings, I’m sure glad I’m in. Don’t have as much as I’d like, but I’m in.” Now you trade the stock. If it gaps up a lot on Tuesday morning you don’t want to be buying more, but just be happy that you have what you have. Maybe you even sell into that move. Or, maybe you just say, “You know what? I’m glad I got it at 40.54. It might now even get down to the level, but if the stock does “gap and crap” a little bit, then I’ll scale in. A little bit higher cost basis than I would have had if I had bought my full position here prior to earnings.” But you’re not thinking about that. You’re thinking about the money you could lose.
You buy a full position prior to earnings; the stock comes down let’s even say to $33.00, Well that’s a 20 percent haircut. And why was that? Because you thought you knew more than the market. You figured you’d get in before everybody on the globe realized what wonderful earnings this company had and that their guidance was going to be great, etcetera, etcetera. Maybe it will. Maybe it won’t. What I’m saying is, you split the difference. You consider the two sides of risk: the risk of losing a bunch of money because you got in to early, versus the risk of not making any money because you got in too late. So I hope this helps, it’s the “split the baby” trading methodology.
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