This Week in Episodic Pivots January 14, 2024
3 New Trades This Week
Hey guys, we’re back after taking a week off last week. I didn’t see any episodic pivots I liked so I took the time to work on revamping my overall trading strategy. And we’ll use that to improve our entries and exits.
We are still looking for a big move on news. But we’ll use an anchored volume weight average price (AVWAP) to make sure the buyers remain in control after the move higher. I believe this will lead to fewer false breakouts, and also tighten our stops.
The VWAP is important because that’s the metric Wall Street traders use to measure if they got a good fill. If a client asks a trader to buy 100,000 shares of a company on the market that day they expect the trader to get the fills below the average price of the day, the VWAP. If that doesn’t happen, the client is wondering why they are paying another firm to get bad fills.
So this is an important metric watched by the big money traders. We want to use it too…. Now nothing is perfect, it won’t always work, but it’s important to continue improving the process. And I believe this will be an improvement to the system.
I won’t bore you all with a stock market commentary this week. Just know that earnings season is starting in full. So we could see some volatility as companies release their 2024 guidance. That volatility could drive stocks higher or lower, we don’t know.
So we’ll continue to hold the three companies we have been holding. They’re still holds. But today we’ll add three more companies to our portfolio.
PagerDuty ( PD 0.00%↑ )
PagerDuty calls itself a digital operations management platform. They collect data and digital signals from most applications or devices and then uses machine learning algos to process and predict opportunities and issues. This helps companies resolve issues and act on opportunities faster.
With the proliferation of AI-enabled systems and customer support I think this will become even more important. And I’m not the only one. On January 10, the company announced it has attracted interest from private equity firms to be taken private.
Now these are early-stage talks. So, there’s still a lot of work to be done. But if the deal closes, it will likely be for a higher price than it is now.
And if the deal doesn’t go through, that’s alright too. I believe PD is drastically undervalued at current prices. It trades at just 36x free cash flow. While that sounds like a high number, FCF is projected to double over the next two years. So that’s a reasonable valuation. This cash flow is likely why private equity is interested in the company. It’s the perfect company for them to take private and then load up with debt to essentially make it a no-money-down acquisition.
The surge in price on the 10th led to an episodic pivot. And the price level held the couple days after that. I believe this will continue higher. We’ll use the 200-day MA as our initial stop on this position.
Aeva Technologies ( AEVA 0.00%↑ )
Aeva Technologies provides lidar sensing and perception products for autonomous machines. It designs a 4D LiDAR-on-chip and software to enable LiDAR and autonomous driving in consumer electronics, consumer health, industrial automation, and security applications.
This company recently went public through a SPAC and has just been beaten down after freely trading. This has been common in de-SPAC transaction in the past couple of years.
But I think the fall is likely over.
Last week at the Consumer Electronics Show in Vegas, the company announced that Daimler Truck selected it to supply long and ultralong range LiDAR for its autonomous commercial vehicle program.
This is a huge $1 billion contract. The thing is the production isn’t scheduled to start until 2026 and then scaling into Daimler Truck’s production in 2027. So it will be a little while until the revenue starts flowing.
To make ends meet until then, the company used the surge in price to issue 51.8 million shares. This was a nice opportunistic time to raise capital.
And the important part is that the price of AEVA barely dipped after announcing the share sale. This shows us that buyers are in firm control of this stock.
Let’s enter into a position on Tuesday. We’ll use the 200-day moving average as our initial stop.
SMART Global Holdings ( SGH 0.00%↑ )
SMART Global Holdings provides specialty memory solutions for computers, servers, and mobile phones. And the company has been beaten down recently. But they reported great earnings on January 9.
The company beat on earnings per share and EBITDA and guided higher in the coming quarter.
It also appears that the META drag to the Intelligent Platform Systems (IPS) business line is over. They expect META’s purchasing to resume, but they have also added new customers to reduce their reliance on just one company.
Also, the memory and LED markets are showing signs of stabilization of 6 quarters of cyclical decline. That makes it likely they can get higher prices for their products in the coming year. And increase margins that way as well.
All this led to the a huge surge in price that day. And it looks like the gains should continue.
And that’s all for this week.
Happy trading!