Want to be trading Under Armour (UA) into earnings? Here is one way to do it. (October 12, 2015)
I want to get into this video about Under Armour ( NYSE:UA ). Here’s my thought: I’ve been bullish on this company for a long time, because I use their products. They’re great! They’re awesome! And so what we want to do here is set up for earnings. You look at this stock (I don’t know if I mentioned it before, I forget), they report on October 22, that’s ten days from now. You look at this stock and the last time it was right to sell the stock was back in 2007. The stock has just been a monster stock, like Nike, but we’re not talking about Nike, I’m talking about Under Armour ( NYSE:UA ) here.
Here’s the thing, you look at the daily chart; lets say you’re not long Under Armour ( NYSE:UA ) and you want to buy. But the problem is that earnings are ten days away. You’re going to feel foolish if you load the boat now at $103.00 and then the stock falls down in reaction to earnings. So I’ve got a trade here for you that’s really not a trade, it’s a way to get into the stock, and it’s actually pretty simple. Lets say you have, and you need to have, a specific amount of money that you are putting into any given stock. You don’t just say, “Oh, I’ve got a hunch. I’ll buy a bunch on this one.” You want to know exactly what your position size is from a “dollar” standpoint not a “share” standpoint.
Now, here’s what you do: you take half of that amount right now. You buy half of what you typically would as opposed to the whole thing. And then you sit here and you look and see, if the stock falls, lets say they report poor earnings. Well the last time the stock took a big hit, look what happened. It comes down to the 200-day moving average and then rallies. So if this company reports earnings that disappoint the “street’, you’re probably going to see another move to the downside. When, or if that happens, that is when you put your other half of your money to work. And so what’s happened? Okay, lets say the stock falls all the way to the 200-day moving average, that’s a 20 percent loss. Pretty big deal, if you bought a full position.
But if you bought just a half a position, you’ve effectively got a 10 percent loss, which is a drag. Who wants to take a 10 percent loss? But you’re not selling, you’re buying more. So then as the stock rallies you’ve lowered your cost basis on your initial entry and you’re in a position of strength. You got the stock, essentially in between the pre-earnings price and then where it acted to the downside. Now why would you do that? Why not just wait until the stock sells off after earnings and then go ahead and buy it? Well, the problem is we don’t know whether that is going to happen.
This is a pretty strong uptrend here. And if the company reports great earnings and gives good guidance, now the “street’s” already expecting a lot, but if it gives new guidance the next thing you know it’s already at $110.00 and you’re not able to buy some stock. Now you’re really feeling like you missed the boat. Because who wants to buy the stock at $110.00 when it will then even be more overbought from the 200-day moving average? So my suggestion here is, get long Under Armour ( NYSE:UA ) but just scale into it. First before earnings and then see what happens with the stock after earnings, and then you’re in a position to win.
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