Let’s Talk about Tempur Sealy International ($TPX) (October 31, 2019)
TPX
I am just doing a quick followup here on Tempur Sealy ( NYSE: TPX ), you can go to sleep holding this stock. This is one of our Growth Stocks; we bought the stock here a couple of weeks ago and didn’t close it before earnings. I will be honest with you; do you know why I didn’t close it before earnings, because we didn’t really have a profit in it. I didn’t close it before earnings because I forgot to.
The point is, most of the time when you make a mistake, if you forget to sell something or forget to close a position before earnings or before some other key announcement that you know of, you can’t know the unknowable but you know when earnings are, most of the time that mistake is going to cost you money. At least that has been my experience if I forget. I always have a good calendar but this one I missed, but most of the time it is going to cost you money. In this case, I forgot; it’s making me money and so I will take it.
But I want to talk about this specific trade. I suggested to our members that they close half of the position right before the close here. Don’t take the whole thing off the table because if you just take the whole thing off the table, if you are a very, very short-term trader, then sure, say, “Thank you very much I have got an 11 percent move in a day. Lord knows I can’t wait for tomorrow; let’s do it again.” But that is typically not the case.
If you are kind of a longer-term trend trader as I am, then you have to look at this and say, “Well, I want to take it all off the table. I am really, really afraid that a stock like this after it jumps up, is going to pull back.” I think the short interest was 5 or something like that, which isn’t very high so I don’t look at this as a short squeeze but still, this is the kind of move that you say, “I’m concerned about losing this profit so I am going to take it all off the table.”
But if you do that I want you to think about it along these lines; if you do that you are absolutely out of the stock. So let’s assume you are out of the stock right now. Would you buy this stock right now? Would you look at this chart and say, “Man, I am going to buy me some Tempur ( NYSE: TPX ) here. I have got to get this stock.” I wouldn’t because it is too extended.
The reason I am going through this analysis is this: because you own this stock right now, you own it. And so if you sell it all you are completely out of the trade and the next move you make in Tempur ( NYSE: TPX ) is, you should look at that as a brand new trade. You have to look at it as a brand new trade. And it’s not a good thing to take a new entry on a stock like this.
On the other hand, if you sell half of your position up here, if you bought it yesterday before the close you got an 11 percent profit on it. Let’s say you have about a 10 percent profit, which is about what I think we had. So if you take a 10 percent profit on half of your position, that drops your cost basis down on your remaining position significantly. So you’ve got a really nice cushion on the rest of the trade. Even if you wind up closing the trade out, the remaining stock out at break even, you have still got a 5 percent profit on this stock on this trade, which is actually not a bad trade at all in this kind of choppy market.
That’s the way I am trading this stock. That is exactly what I did. I took half off the table and I am keeping the other half on; because to do otherwise, to completely close out the trade is the same thing as saying this is the top. This is the absolute top of the stock; it is not going another penny higher. Okay, I don’t know that, and I will tell you something, look at the big volume spikes here on this chart. It’s green, okay, there’s a red one here, fine, I’ll give you that. It’s green, it’s green, it’s green, and it’s not green, it’s green, it’s really big here; so big, big volume here, this is a power move. And so I would not look at this stock and say it’s done going up. Would you short this stock? It’s like jumping on top of a rocket after it has already been fired. So no, you wouldn’t short this stock.
If we look at the weekly chart this will kind of give you a better perspective. This stock has essentially been in a trading range; it’s been a pretty wide trading range. But it has been in a trading range since 2015 and it has finally broken out. Frankly, it’s like a real sloppy cup and handle. But when a stock trades for 4 years, up and down, it can be sloppy. So when I look at this type of a move I can see this stock easily running through $100.00 and just continuing to move. Frankly, if it’s up, say if this is a $40.00 depth in this base, that’s about where this is, so you run this up here, I could see this stock going to 120.00. Not overnight, maybe not even this year. But generally speaking, this is a stock that has finally broken out of a multi-year base. And it held the close today; it held the breakout. And most breakouts these days are failing.
I am not going to go into detail here, though I know Scott McGregor is going over this tonight. The fundamentals are actually pretty good on this company too so there’s reason for traders to be buying this stock. And if you look at the way the squeeze has been working here this was a really nice pinch and pop. It popped up, found some consolidation and now it’s moving higher.
The bottom line here is, you can’t just sit here on an 11 percent gain in one day and just let your whole position ride. You kind of have to take a little bit off the table just for the sake of prudence. But there is a compelling reason to stay long the stock. And by the way, you are seeing this video tonight after the market closed on Thursday or in the morning before the market opens on Friday; if Tempur ( NYSE: TPX ) is up tomorrow then just hang onto the stock, don’t sell anything. But keep a stop on half of the position so if the stock does pull back you will take a nice profit on half of your position. But with very, very short-term trading, take half off the table. A longer-term trader, you definitely want to keep half and let this winner run.
Free Chart