Hey, this is Sasha and welcome to my brand new show, ‘Hungry for Returns.’ In this show, what I’d like to do is go in detail into answering your trading or investing questions because sometimes the written word is not enough.
So, by all means, go ahead, submit your questions through our contact form or even you can record it by voice or video, and you might be featured on our show.
The goal is to go in depth in detail to answering your trading or investing questions when you want a little more depth rather than just a written email.
Here, what we’re going to do today is take a look at going in detail into this question that we have coming in from Justin.
Hey Sasha or team,
I have a question regarding my current situation.
So, I need some advice.
I was in the position of FB(Facebook) a month before (around 50% of my portfolio and about $200 price range).
As you know, unfortunately, the price is tumbling 20% after earnings.
I know I have to get out but… it’s hard to push the button.
Do I have to get out no matter what? Or should I wait until bouncing?
So, let’s take a look at Facebook. Analyze this and give you some more perspective.
Again, I can’t tell you exactly what to do because everybody’s risk tolerance is different. Your portfolio is different. Your age is different. But to give you some perspective, let me share with you my insight here on Facebook.
When we take a look here at overall Facebook, this is the long-term trend line on Facebook. This is the normal progression of Facebook.
The big question you need to ask yourself is — what was my plan when I got into the stock?
For those of you that have been listening for a while, I typically don’t like hanging around stocks that I’m past earnings or holding through earnings unless you plan to keep that stock for 10 or 20 years.
In that case, that’s a different story then go ahead and hold through earnings.
But if you’re looking to hold that stock for just a short period, then you probably better avoid those earnings.
With that being said, the long-term trend still looks intact. So, looking at this longer-term trend, it still looks intact. If you put half your money in Facebook, he took a big hit, but the long-term trend is still intact.
You were looking to get in at the $200 level, which was a little bit at the higher peak from that long-term trend. Again, you were buying at the highs.
But what was the plan? You have to think about what was your plan when you got into the stock.
Take a look at the weekly
If you got in at the $200 price level, probably somewhere right around this price point, which again you had a massive acceleration or ramped up in the stock price. A pullback is only natural and healthy.
Coming back to the 190 would have been healthy. If it would have bounced in this case, we went down into this 170 and right now it’s attempting to hold.
So the question is — what are you willing to give this stock? How much room do you want to give it? Do you want to give it to 150? Are you a shorter term trader? Or if you’re more on the longer-term side?
You could probably look at this longer-term trend line, and in that case, you might give it into somewhere around the 155/158 range. Right now, the stock is at 173. It’s trying to hold and bounce, but typically these bounces don’t last a very long time after these massive sell-offs.
What can happen after a massive drop like this is that you might get three to four months worth of gains and it sucks you in? It might get back into the 200, and then you get a nasty sell-off. Because what may happen is people who bought it at the 200 level, they may be waiting to dump the shares because they’re scared, they’re nervous. You need to be very careful of that, but this is not just a shorter term blip on the stock.
Again, I don’t know what the stocks are going to do because you never know what a stock will do.
But here, in this case, when you have significant movements in a stock price in a single big day like that, it’s usually not over in a single day. Typically, what happens is you see it’s continued to sell-off then again further sell-off you’re getting a short-term bounce for them for today. That could last till 180. It could last of the 200, and then you could get a potential sell-off.
What happens next?
If you get a ramp up again, a massive move to the upside, that’s maybe at a 60-degree angle, just like we did from April to May. In June, you are going from about one thing 200 in just a couple of months.
Then that again would worry me. Anytime you have a massive move like that, that’s accelerating. Be very careful.
Again, what should you do?
If you’re anxious and you’re concerned about it, then it’s better to get out.
If you’re looking for the long term, what you could do is add to the position with time. Again, I’m not saying add a ton right away, but with time, what you could do is slowly start averaging more into the position. But still, this should have been your plan from the beginning.
If you’re doing things right now, and you don’t have a plan for it, and it’s unexpected, well you need to go back to the drawing board and figure out well what would be my plan the next time this happens because it’s going to happen with stocks out there that just trade in higher dollar values. They will drop it in a big way at times, and it may be unexpected, but this is what can happen.
You need to be careful and cautious for the future.
In that case, set a plan. What happens if it drops 10%, 20%?
This is why you diversify. You split your money across multiple assets, different stocks, different investments — so that way it’s not a primary sore to you when this nasty sell-offs do happen.
Remember, don’t trade earnings if you’re a short-term trader unless you’re speculating with options and you know what you’re doing. Otherwise, that stock can move anyway to the upside or the downside even if the earnings are good or bad, it doesn’t matter because it’s a matter of perception.
Sometimes, when earnings are good, stocks can still sell off. And when things are bad, stocks can pop higher due to the outlook or future projections.