The Market is a psychopath. When it loves a stock, it takes it to the moon but when it hates the stock - it destroys it like crazy.
That's the market for you and you will have to learn to deal with it
Case Study: Under Armour
Once Upon a time - When the market was in love with Under Armour - everything looked good - a nice trending chart with moving average as support
The first sign of trouble emerged when stock broke down below the moving average but even then for trend buyers and buy on declines crowd -
it was a great stock to follow with 32.5-33 as great buy area
The biggest competition to Fitbit is expected to come from Under Armour. Under Armour is one of the high growth companies to look for
— Deepak Singh (@smarket) February 2, 2016
Everything looked Good and the stock was buy on decline with horizontal base at 33-34 - but then this happened: the company disappointed and the stock broke down below the support line - it was a signal for trend followers: Run and Exit the stock
The stock price movement is always with respect to expecations and not the absolute number.
What happens when growth is priced in the stock
Under Armour reported strong earnings 22% revenue growth -- and 28% growth in profits pic.twitter.com/FS5ulbx9MD
— Deepak Singh (@smarket) October 27, 2016
As an investor, you have to quickly recognize that market is now going to treat this stock very badly and it's time to hit the exit button.
Because just see what the market has done to this stock in last 10 months
There is tendency among people who don't understand this behaviour of the market to look for Value in such stock but if you understand the personality of the market, you will never touch the stock. Also, people are scared to sell the stock on breakdown thinking how can I sell at 32...it's mouth watering because they compare it with $50 without realizing that soon it might become $15
The market does not take betrayel and disappointment quite well.
Science of Stock Price Action
The best learning comes from experiential learning. It is with this objective - I have developed "Science of Stock Price Action" Video Book. It's a combination of concepts and then its application in real life situations. The idea is to test how concepts work and why sometimes they don't.
If you find my work interesting - I will encourage you to buy the book and access Premium Case Studies. The idea is to demonstrate live how patterns unfold and work. They succeed, they fail but the whole process is real fun. I invite you to be part of it.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers