Are you always wanting to cut into the front of the line? That can be hazardous to your financial health. Look at what happened to Silicon Motion (SIMO) today. (July 07, 2016)
SIMO
SIMO, Silicon Motion ( NASDAQ:SIMO ). They reported strong earnings today. You can see what happened to the stock, it gapped up, and it was undoubtedly. So it gapped up almost 10 percent. Undoubtedly it was being bought by all those folks who saw those strong earnings and they wanted to get to the front of the line and buy this stock before anybody else found out about it first thing in the morning. This is what that looks like. How many times have you seen this? And by the way, you’re going to see this a whole BUNCH of times in the weeks to come. The stock gaps WAY up; lets go to the 5-minute chart. You can see the stock gaps WAY up, flops around a little bit, there’s like no continuation, and then it just drifts down for the rest of the day.
The moral of the story for this, and it’s just a real quick video that I wanted to point this out because we’re coming into earnings season next week. When a stock makes a big move in response to a NEWS event, be very careful about chasing that stock. Because it’s not running away from YOU, it’s not between the stock and you. It’s between you and all those other folks who have already bought the stock. And then as more and more are buying, listen to me I’m giving you pearls, as more and more are buying the stock, the group of happy shareholders increases. More and more traders, as the stock moves higher, they’re all HAPPY because THEY’RE making money; they bought it at $50.00 and the stock is now at 51.00 and 52.00. And at some point that group of traders gets so big and so giddy that somebody says, “Well shoot man, I think I’m going to go sell the stock now and then go do it again on some other stock. This was nice.” I’ve just explained the cyclicality of stock movements.
But the thing about gaps is, they happen in a minute, between 4:00 when they closed and the very fist minute of trading the next day. So when you see a stock gap up like this, here’s what I want you to think about: Everybody on this chart is really happy. Everybody on this chart, who’s already long this stock, sees that they just made 10 percent in a minute. That’s not the time to be buying; you’re being benevolent and taking some nice folks out of their positions. Instead, you want to say, “No, I’m going to stay away from this.” In fact the GOOD opportunity here, and you’ll see some of THESE in the weeks to come, the good opportunity is to SHORT into this. That’s what the professionals do. The money is made in the morning. The signals are given in the afternoon. Think about it.
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