Yesterday, I laid out a couple of trade setups that I’ve been watching.
I gave some specific analysis and entry points for two trades, one for Meta (NASDAQ: META) and another for StoneCo (NASDAQ: STNE).
My top choice is StoneCo, so let’s start there. Here is a synopsis of why I am bullish…
Trade StoneCo (NASDAQ: STNE)
The company is fresh off a significant quarterly earnings beat, analysts are raising their estimates for the remainder of this year and all of next year, and the stock price itself had a fairly muted response to that earnings beat.
As for the entry point specifics for a trade, I said this: The best entry point would be on a dip to or below $11. The second-best entry is a break above $11.90.
We are getting that dip below $11, so let’s take action.
Buy to open the STNE call option at the 11-strike price that expires on December 16 at or below $0.60.
The goal of this trade is to catch a 5%-10% move higher for StoneCo over the next few days. Risk/reward is approximately 2:1. That is, we’ll double our money or take a 50% loss. So allocate accordingly…
Back to the Drawing Board for the Meta (NASDAQ: META) Trade
Now, the Meta (NASDAQ: META) trade. Yesterday, regarding an entry point, I said:
“A re-test of the 50-day MA at $119.50 would make a nice entry point.”
Yesterday, shares of Meta closed at $122.43. META opened today at $119.91. That 50-day MA at $119.50 was completely ignored as a support point – 5 minutes after the open, META shares were falling below $118.60. And 5 minutes after that (9:40 AM), shares had peeled off another dollar, to $17.60…
Shares seem to have stabilized around $115, but this trade is now off the table, null and void, back to the drawing board…
The whole point of watching a stock for a little while before risking real money on a trade is to get a feel for how the shares move. Once I get a feel for a stock, I’ll start to lay out some trade parameters based on how I expect the stock to move.
In the case of Meta, a pullback from the recent rally was expected. And a ~3% drop from down to what should be support at the 50-day MA was a pretty reasonable expectation. But Meta shares were much weaker than I expected.
And when things don’t go as I expect, the best course of action is to abandon whatever trading plan I had drawn up. So it’s literally back to the drawing board for Meta…
I will consider the StoneCo trade as an active position and will update you accordingly.
Take care, I’ll talk to you soon.
The Profit Sector