I know lately we sound a bit like a broken record with some of these high-flying momentum names but while day-traders are having a field day with the volatility, both up an down, we are in the camp that a potential loss of upward momentum in some of the leaders like TSLA, NFLX & LNKD could be a clear sign of abating risk appetite for equities. Obviously, the jury is still out whether this the case or not and my sense is that the trade is not over yet, but it is fairly important how some of these more speculative stocks act after they have important fundamental news and approach key technical levels.
Today I want to look at TRLA, which Tuesday after the close, reported Q3 results and offered Q4 guidance that looked to be inline or better than expectations. The stock was up almost 10% yesterday morning from the previous day’s close but is now down about 14% from those levels (3 day chart below):
On a longer term basis, the daily chart is sitting at massive support level, some might call it a textbook “head and shoulders” top formation.
I have no clue as to the fundamentals of this company but my sense is that a combination of its peer group losing a bit of momentum and the FOMC’s commentary about housing is weighing on what was very positive sentiment in the stock just 27 hours ago.
TRLA is just one input that will be part of a much larger mosaic as we evaluate the continuing merits, and/or the merits of the “momentum trade” but for the moment it appears that investors have hit the pause button on the group. Is it for fundamental reasons like worse than expected guidance as was the case with LNKD, or merely an as good as it gets situation like in NFLX where one seller (Icahn) can cause a cascade of selling?
In the case of TRLA, trades that use 45 as a top level to play for a selloff to 35 make sense from a bearish perspective. If you think these stocks have topped out for now but aren’t down for the count, selling that range makes sense.