Here’s a way to buy a big gapper with minimal risk. Check out $ANF and $NFLX – February 14, 2024
Dan here, at StockMarketMentor.com. I want to look at Netflix ( NASDAQ: NFLX ) today.
A lot of times you’ll see stocks that gap up, here’s one that comes to mind, ( NYSE: ANF ). They gap up on earnings and then they never quite give you a chance to get in. You don’t buy it on the initial day, and then you’re waiting, and you’re waiting, and you’re waiting, and it just keeps going up, and up, and up.
SMCI ( NASDAQ: SMCI ), of course, is one of those stocks, that’s the most notorious one right now. But if you look back at ANF ( NYSE: ANF ), Abercrombie & Fitch, you kind of get the same thing. Where this stock ramped up on earnings and it never rewarded you.
Even if you had said, okay, I’m going to go ahead and buy on the close, this first day that the stock gapped up, and then it ran. I just can’t help it, I’ve got to buy this stock. Well, the next day it pulled back almost 5 percent, which was fine, but you totally chased the stock, you did, you chased the stock.
But then you were rewarded by a 24-25 percent gain in the space of a few weeks. This was one that paid off. And then you actually get the same thing here the following quarter. The stock gaps up even if you bought here. If you waited a couple of days you would have got a better deal, but it didn’t pull back that much, 3-3.5 percent.
Then it ultimately ran up almost 10 percent. This is another time when the stock didn’t really give you an opportunity to get in. It is something that you just have to deal with. This is a little bit different here, but the way I think you deal with it, on something like this, because the stock was trending lower, you could see what’s happening here.
It was holding the 200, they were close together. Of course, when the stock ramps up so fast then everything’s going to start twisting to the upside, like the 50. But this was, actually, in a pretty good squeeze, in a pretty good position to move higher. So if you are recognizing that, then you see the breakout, but you go, I can’t buy this here.
This is what you do, you say, I can’t buy this here, I have got to wait for a pullback. But if the stock runs above the high here, which was 30.29, if the stock runs above the high here, then that tells me that this is going to go. So that’s when you buy, you would actually buy a little bit higher than the stock was, which can seem a little counterintuitive but trust me, it works.
Because what you want to do is, this is the sequence, I think that’s institutional buying so I’m going to go ahead and buy. Now, what do I need to know if I’m wrong as far as institutional buying, how can I tell that? Well, guess what? It’s because the stock starts going lower. That didn’t happen this time around and people made a ton of money.
Now, with Netflix ( NASDAQ: NFLX ) I’ll give you the same exact scenario. The stock gapped up; it kept running. If you had bought it on the gap, you’re up 7.5 percent, but you didn’t, I didn’t. So the next thing you do is, say all right, where was this high? This high was, on this day, up at 79.64, so we’ll make this at $80.00.
I’ll say that the next time you want to consider buying the stock should be at $80.05. You could say, well, I could buy it now and get a head start. Yeah, well 2 things, first of all, we don’t know that it’s going to break out. But second of all, you are getting a head start by 1 percent, 2 percent something like that. So you’re taking a lot of risk in order to get an extra 2 percent if the stock does what you are hoping it’s going to do.
I just think that’s a bad bet. The best thing to do on these stocks that gap and get away from you is, to just watch them, assess what’s going on, and wait 3 or 4 days to get a sense of what the range is. And then create a whole new plan for how you are going to trade this stock.
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