This Week in Episodic Pivots: May 29, 2023
Never short a stock in an uptrend
Never short a stock in an uptrend.
This should be common wisdom now. This is the opposite of the Wall Street adage “never try to catch a falling knife.”
But it’s amazing how many people ignore this rule. And it’s to their own peril. Just look at Nvidia ( NVDA 0.00%↑ ) last week. I saw tweet after tweet about how Nvidia was trading at an unreasonable 27x price to sales. And that’s not sustainable. And the stock would go down.
I agree. Nvidia is overvalued. And I don’t see how they can have enough chips manufactured in the next couple years to justify that valuation. But that doesn’t matter.
In the short-term, the market is not always rational. And right now, investors want AI exposure.
And Nvidia gave the bulls a lot to cheer about when they released earnings Wednesday evening. The crushed earnings and said they were about to sell a ton of GPUs to enable AI applications. This sent the stock up something like 25% on the day.
Anyone short in this name got crushed.
Never short a stock in an uptrend. And never short a trend that’s gaining popularity.
I’m sure you all know I believe the market is heading lower at some point. There are too many indicators pointing to an economic slowdown. But we haven’t gone short yet. And that’s because the market is still trending up.
Thursday’s price action in NVDA was technically an episodic pivot. So are we going to invest? Nope. Not a chance.
The stock is far overextended and is up over 130% on the year. This stock is in no man’s land for us right now.
There is no way to calculate a risk/reward on a short-term trade here. So we’re going to leave this alone.
But remember this lesson when trading…. The trend is your friend.
This is why we give our winners a chance to run. Just in case we’re holding onto a big one. SOUN was one such big one earlier this year with a triple digit gain.
And we’re holding on IONQ right now which is up big. We took half our position off last week to lock in an 85% gain. But we’re going to let the reminder hold even through all its volatility. Because you never know… And being an early entrant with a quantum computing product on Amazon Web Services (AWS), we could be one announcement of higher than anticipated usage to another 100% run higher.
With the market trending higher, I feel comfortable holding onto this position…. And the S&P 500 is on the verge of breaking out of its trading range.
4,200 was the resistance point. We had a weekly close above it on Friday. Now we get to see if it holds this week.
We’re going to plan like it will break higher. So let’s add a couple positions this week.
Lions Gate ( $LGF.A )
The film studio released earnings Thursday evening and crushed expectations. They beat on both the top line and bottom line. They saw strength from the John Wick release in the theater and record revenue from their film & television library. Streaming is starting to treat them well.
This turnaround in revenue and profits is likely to continue. It feels sustainable to me… And it seems like investors are starting to get the picture. And the stock is poised for another leg higher.
We’ll enter the position tomorrow morning and we’ll use $10 as our initial stop.
AbCellera Biologics ( ABCL 0.00%↑ )
AbCellera develops next-gen therapeutic antibodies through innovative technologies. And they are a bit of an anomaly – a Canadian biotech company.
Being Canadian, they have one important client… The government. And last Wednesday, they signed a co-investment pact with Canada and province of British Columbia. It’s $701 million (CAD) co-investment to strengthen infrastructure for drug development, manufacturing, and clinical research in Canada.
AbCellera will work with clinical researchers across the country to design and conduct Phase 1 trials for new drugs.
This will help kickstart drug development inside of ABCL and also allow the company to work with other researchers to utilize its offerings. This is a huge deal for the future of ABCL.
And we already see some insider buying with the CFO picking up nearly $100k in shares the day after the announcement.
This is what the company needed to get the stock price moving out of a base it was trying to form. It tested support at the 10-day MA last week and bounced back to the 50-day. This looks like the start of a new uptrend.
And that’s all for this week.
Happy Investing!