Here’s your trade on StoneCo ($STNE). (October 16, 2019)
STNE SP-500 STNE
The market, the S&P ( INDEXSP: .INX ) is looking pretty close to breaking out. I am not sure that it is going to do it this time around. We have seen it actually flirting with 3 thousand several times over the last several months and each time like where it is now it has actually fallen back.
I am not predicting or even looking for a breakout, I am just noting that this is where the market is, which kind of takes me back to StoneCo ( NASDAQ: STNE ) and this is why: Because you can see the lines here, this trendline of rising support here on an IPO and this one here, this horizontal line here at $32.00, or actually 32.50, this is right along what I would call the enthusiasm high, which is when the company first goes public all the idiots rush to buy the stock before everybody else can get it.
We’ve seen this with Slack ( NYSE: WORK ). We’ve seen it with Blue Apron ( NYSE: APRN ). Back in the day, we saw it with GoPro ( NASDAQ: GPRO ). We would have seen it with WeWork but happily, somebody sniffed that fraud out before he could declare his pronouns so we are not going to see it with WeWork. We see this kind of stuff all the time, where a stock comes out and goes public and then gets cut 30, 40, and in this case percent of its market cap right away.
But once the stock runs back ABOVE that enthusiasm high, by the way, it doesn’t have to be on the opening day, a stock can run up for an appreciable period of time where it’s a week or a month after it comes public but sooner or later the thing peaks, and that’s when I call it the enthusiasm high, the peak of enthusiasm. Once a stock that has pulled back then gets back above that level, then it is kind of in a whole new world because everybody that bought at the open is a winner. That’s kind of where we were here.
You see this kind of play here and you could say, “Well, that’s not much of a move. I should have bought here.” Well sure, me too. But if you are waiting for this strategy, you look at the stock and it breaks out above 32.00, lo and behold it goes up to 45.00, hey, $13.00 on a $32.00 stock, I’ll take that every day if I can get it. So this was actually a really good move but then ultimately you see what’s been happening here. The stock has been hitting these higher lows under solid accumulation and now we are kind of right back to where we started. This is where the buyers were, and this is where the buyers were here, and then buyers were here, and now they are here.
What I am saying is, this is now a good opportunity to be buying this stock in a very identifiable and predictable pattern. So you can be taking this stock now and then have a stop, I wouldn’t really use the 200-day moving average as a reference, that’s this blue line, I would just use below 30.00, you could if you wanted to go beneath $32.00. The issue that I have with that is, if we are really looking at these higher lows then back here at about $32.00 is where support should be. So you kind of keep your stop a little bit below there, 31.70, 31.80, something like that. That keeps your risk at a reasonable level but puts you in an uptrending stock near the low of the channel. That’s how I would trade StoneCo ( NASDAQ: STNE ).
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