A tale of two gaps — Momo (MOMO) vs. Universal Display (OLED) (May 29, 2018)
OLED MOMO OLED MOMO OLED MOMO OLED
I want to look at a couple different charts today. First of all is OLED, Universal Display ( NASDAQ: OLED ). News today was that their display is going to be used on the next Apple iPhone and that is why the stock popped up. At the same time Momo ( NASDAQ: MOMO ), a Chinese social media company broke out to the upside on really strong earnings. This thing gaps up 10 percent. OLED ( NASDAQ: OLED ) gaps up about 20 percent.
Now, are you really going to go long a stock that is up 20 percent on the gap? Not on your life. This is the tale of two potential shorts. When a stock is up 10 percent it is something that you have got to think, alright, we are probably going to see a lot of money selling into that move and so my bias is towards shorting the stock; that would have been Momo ( NASDAQ: MOMO ); OLED ( NASDAQ: OLED ) twice as much. Let’s look as see what happened during the day.
First thing out of the gate (let me go down to the 1-minute chart), this stock gapped up and almost immediately started selling off. Your short trade could have even waited and gone down to 114.00 even 113.00 or so if you wanted to be kind of conservative.
The idea in trading these really super big gaps is this: You want to look at the high level during the first minute. You want to look at that as your drop dead on your short level. In other words, if the stock moves back ABOVE the opening 20 percent gap to the upside. If it moves above that, you do not want to be short this stock. You don’t want the be saying, “Well, it is up 20 percent. I shorted it when it was up 19 percent. But you know what? There is no way it can go up above 22 percent or 23 or 24 or 25.” If it gaps up 20 percent and keeps going you don’t know how far that is going to go and you should not be short the stock.
What you are trying to do when you get off a short is get as close to the high in the early trading. You have got to have at least one candlestick on there, two preferably. But you want to see where the maximum enthusiasm was and it was and it was right up here. So you are shorting the stock and then you can take the short however long you want to take it; usually after the first hour of trading. That is why I have a course called The 59-Minute Trader. After the first half hour of trading that trade is pretty much done.
Now, at the same time Momo ( NASDAQ: MOMO ); you can see here, the stock gapped up and kept moving. So shorting after the first minute was not a good idea because the stock wasn’t telling you that it was drifting lower. It was actually telling you that it was moving higher because the stock opened up here and kept going. Again, whereas the Universal Display ( NASDAQ: OLED ) immediately started selling off. You could have been short one and long the other but who really wants to deal with that mess? You just take one stock and just focus on that.
But here with Momo ( NASDAQ: MOMO ), this was really the line in the sand. Right here, a little under $43.00 the stock is up and then it really never came down and fell below that level. So this was about as clear a long trade as Universal Display ( NASDAQ: OLED ) was a short trade. This actually formed a little bit better because it drifted sideways for most of the morning and then finally kind of started breaking out to the upside. Not the greatest trade in the world but it was a trade.
Now at this point with Universal Display ( NASDAQ: OLED ) you have got to just stay away from this stock for the time being. There is so much pain in this chart right now that I can see it is probably going to just drift sideways for a while. Frankly, you would be better off waiting for the stock to break out to a new high here and the buying it because at least then you know it’s upward momentum and you will see strong buying. If you are just buying it here, yes, you are getting a head start on the big move. If there is a big move up this way, why would you want to buy it here when you can buy it here and get to 150.00 for example? But we don’t know whether the stock is going to 150.00.
What I am saying is, waiting for the stock to actually break to a new high, well you know then that all of the folks here are winners because now the stock is up here; whereas right now you don’t know that. The stock starts moving up a little bit you have got a lot of folks are going to be happy to sell you the stock because they bought right at the top.
The bottom line is this: It is important to understand what is actually happening in the charts. Don’t look at them just as squiggly lines and weird boxes and stuff like that. Think about what is happening to make the prices do what they are doing. If you can think about that and get a handle on that, these charts, all of the sudden, are going to jump off the page. You are going to see things that you never thought you would see.
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