Here’s how you trade The Trade Desk (TTD) and Nvidia (NVDA) around earnings. (November 07, 2017)
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We are looking at The Trade Desk ( NASDAQ:TTD ). This isn’t a trading desk it actually has to do with advertising, buying time, stuff like that. It is not a high-frequency trading firm. So what are we going to do with this? I had put a note on this back on the 12th, that this was a solid looking company, really, really good fundamentals. The trend wasn’t great but it was trending higher. A little bit choppy, which actually just kind of gave you several opportunities to buy it at a low-risk point. A pretty recent IPO, which is a good thing, it has been around for almost a year. And look at this: 22 million in the float and 21.6 is short so it has got a pretty high number of shares that are shorted, which should put more impetus on any uptrend.
So we see a couple things, first of all, and most importantly, earnings tomorrow, not today, tomorrow. We see the stock selling off on very, very high volume; that is kind of a red flag. Though, for cryin’ out loud, how many times have seen a stock sell-off in anticipation of earnings? Trading down, “Oh I have got to get out of the stock”, and then the company reports earnings and the stock pops up 5 percent and then keeps going. Happens all the time. We don’t know what is going to happen here with The Trade Desk ( NASDAQ:TTD ) tomorrow when they report earnings.
What I am suggesting is this: If you don’t have a profit in the stock do not hold it over earnings. There is no reason to. It is just the same as buying a stock before earnings, you might make money, you might not. But make no mistake about it, you are guessing. You can think about it, you can pretend that it is something other than guessing, but you are guessing. Because if you weren’t guessing wouldn’t you take out a second loan on your house and put it all into this stock? Because after all, hey, it is a sure thing, right? It is not a sure thing. It is a guess, you are just rationalizing it.
So if you don’t have a profit, look, you missed the opportunity to buy the stock at a profit. If the company reports earnings, the stock pops, well you missed that too. That is okay because the company could have reported earnings and dropped 15 percent, think Snaptwit ( NYSE:SNAP ), and then suddenly you are feeling like an idiot because you bought just before earnings. Just as a rule, if you don’t have a profit in the stock don’t be holding it over earnings. For example, I suggested on the 12th of October, that would be right here, the closing price, at 65.31, I suggested buying this stock if you are interested in a company with really strong fundamentals and an uptrending chart. Well, that turns out to be okay, at least so far, we will find out tomorrow.
Let’s say you did this and you are down 5.6 percent now. Don’t hold the stock. You are down 5.6 percent. If you hold the stock you violated one of my rules of trading, don’t hold a losing position over earnings, you are hoping. You take your 5.6 loss and then you wait. If the stock pops up, you know what? You stuck with your discipline, it is okay. Because the worst thing that could happen is you violate your rule and then you make money. Because when that happens that means that you have just got to just throw that rule out because, “Oh, if I had followed my rules I would have lost money.” Rules are made not to be broken: they are made to be followed so you don’t get broke in (I just made that play on words up).
So you look at this versus NVIDIA ( NASDAQ:NVDA ). I have owned NVIDIA ( NASDAQ:NVDA ) for a while, though I will admit, not as long as I should have. If I had bought it when I was first saying you have got to buy this stock, I would have a different situation going now. But I had a nice profit in this stock. They report tomorrow, I sold some today. That is my deal. Selling it and if the stock goes down tomorrow, you know what? I may wind up buying back my position because I think the company is going to continue to do well. The stock is going to do well. It has got a really high valuation on it but we don’t know whether it is too high.
Typically you want to be in the stocks that are the most expensive. Amazon ( NASDAQ:AMZN ) has been expensive since the day it came public. So the fact that the stock is expensive doesn’t bother me in the least. I don’t want to own the cheap ones. I don’t want to own the duds, I want to own the good ones. I read some article today, such and such an analyst, “Oh, the stock is too expensive going into earnings.” No, it is not; it is $209.16, that is where it is right now. That is not expensive or cheap, it is $209.16, that is where the market finds this to be a fair price. So if the stock happens to go down then that analyst is looking like, “Boy that is really, really genius. I have got to pay attention next time.” But on the other hand, the stock pops up and even then it sells off, it is a totally different thing. Suddenly that stock wasn’t too expensive, oh, but at 240.00 it is too expensive.
What have we gone to when we are looking at that type thing? When we are listening to some cheesy analyst make a call? I shouldn’t say that I didn’t even read the article, I just read most of it. They are saying it is too expensive. That article comes out, the stock is down 1.3 percent. Nobody really cared that much. So we look at this type of thing and what do we do? If we make a decision based on some analyst’s opinion rather than our rule of at least selling half, actually, at most selling half of a profitable position before earnings, if we don’t do that then we are no better off than we would have been in Trade Desk ( NASDAQ:TTD ). Those are, in my view, really enviable rules that you should be following. You book half of your profits prior to earnings; that gives you more confidence to trade around the post-earnings move.
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