Another look at MobileEye (MBLY) — you can catch it coming and going. (September 15, 2015)
I’ve been talking about Mobileye ( NYSE:MBLY ) lately and so I thought I’d just return to it one more time. I think it’s helpful to traders, even if you’re not making the trade, and also if you’re just trying to just get a sense of what I do. I’d like to not make this “Chart of the Day” be the “Stock Pick of the Day.” I manage traders. I don’t pick stocks. There’s a huge difference. Managing traders is much tougher; trust me.
Anyway, with Mobileye ( NYSE:MBLY ); I liked this deal, I liked it back here, I liked a lot of things back here and then the bottom fell out of the market. Guess what day this was? My bet is August 24th, when everything fell. The stock’s back to the 200-day moving average, tanks on a downgrade by Citron Research, which is a short selling firm; they do really good work. That knocked the stock down and I thought, “Well, this is a buying opportunity,” not because, “Oh, they really screwed this deal up.” No, they didn’t.
They’re looking at valuation and they’re saying they don’t get how the company justifies the valuation that it has. And that’s fair. They’ve got a huge valuation even now, a huge market cap. And so I get that. But I was just looking at this technically. We get this first positive move here. This looked a lot like this only lower, same kind of deal. Very, very high volume, so this is a buy signal right here. It literally is. The next day the close was at 46.03, “I’m going to buy if it’s 46.04”. And so you see what happens.
So you’re buying at 46.04, the stock is still working. Volume has returned to normal, but you’re in this stock. And now you can also, if you’re making this trade, the reason I want to mention this is my original suggestion was, and this made it difficult, was you put a stop underneath this tail here, under this big, long tail that ultimately saw a nice intraday reversal, and that’s where your stop is. But the problem was it’s kind of a loose stop. It made for a pretty risky trade. Well now you’ve got a better one because the stock’s up, it’s holding above the 200-day moving average.
Again, with the Fed on Thursday, all bets are off on anything. But you can actually have a tighter stop now, right around here if you’re thesis is different, which would be the stock bounced up, it’s finding support at the 200-day moving average, I think it’s going higher. So you put a stop in here and then you look for this kind of move. Now, if you were thinking, “Okay, I’m going to buy this stock because I think maybe it will pullback but it will have a higher low than here.” Well then this is a ridiculous place to put you’re stop.
Also think about it, if that’s why you’re buying it, because you think if the stock pulls back it’s going to be at a higher low, then why are you buying it? Why not just wait and see if the stock does what you think it’s going to do? My personal feeling right now, which is the only feeling you will ever get is my personal stuff, is I think the stock’s moving higher from here. But I’m just looking at it as a trade, only as a trade now, because it’s a broken trend. You can look at the company and what they do. It might be just amazing and all that, I think it is pretty cool technology. It would allow me the ultimately text while I’m driving. How nice would that be?
I think that all of that stuff though, doesn’t matter with respect to making money. This stock is broken. The uptrend is busted. This is what you see a lot; you see this kind of move: nice uptrends here, and then a breakdown, a move back to test the bottom of this channel here (you can draw this any number of ways, but his is as good as any). If it fails then the stock moves lower and often times will hit a higher low just because this first one was so massive. Here you see a higher low, but this massive spike in volume; so there’s this big, big, huge turnover in shares.
This is, by the way, one of the techniques that I talk about in my “Short Selling” course, as far as how to get these when the trendline is broken. You don’t short here or here or here. You don’t short after the break, you short after the test, after the test of the break. And the first sign that the stock falls back is rolling over, and then you put your stop, a buy stop, right back into the channel, and that tends to be a pretty good short. So we get a higher low here. As far as the close I think this extended even lower thus giving more credence to the bullish argument, we’ll take this away. It extended lower, massive volume, and then is rebounding.
So advantage bulls right now. I’m looking for higher prices. The idea of shorting this stock is certainly not something that you want to do now. You can trade this thing both ways. You take it long and then when the stock shows signs of rolling over again, and it probably will, that’s when you short it. And now you’re a complete trader, because you just bought something and then shorted it on the turnaround, and that’s ultimately what you want to be doing.
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