Fitz Bits: Don't Root for Stocks

 | May 10, 2014 | 1:30 PM EDT  | Comments
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Stock quotes in this article:

nflx

,

pcln

,

scty

,

tsla

This commentary originally appeared May 9 on Real Money Pro -- the ultimate traders' resource for actionable trade ideas and in-depth market analysis. Click here to learn more.

OK, let's look at some charts.

One of the tougher aspects of trading for newer traders is the ability to let go of a stock psychologically.

When a stock is making you money, you run the risk of morphing from trader to fan. You start thinking that you know the stock and the stock knows you.

Not so.

What you've got to remember is that you're not trading the stock, you are trading other traders. When you sell a stock, someone else buys it. When you buy it, someone else is selling it to you. One of you is going to be wrong.

When you start rooting for a stock, you have totally lost objectivity and have given the other trader a monumental advantage. Just think of sports betting. If you are the guy who goes to the game bare chested with his torso painted in the team colors, a beer hat loaded with a couple of Buds in it and a face mask of your favorite player, then chances are that any bet you place on the game is gonna be on your team ... regardless of the spread.

Put another way, you're the drunk sucker with the body paint and a losing bet.

Don't be that guy. Stay objective.

Here are four charts that used to lure body painters. Now they should just be sold.


 

Netflix was a superstar in 2013, but it's definitely fallen off the charts in 2014. The first sign of trouble was a shot across the bow in January (that's my term for a trend break that quickly recovers). It is often the first sign of trouble in an established trend and should be heeded. 

Here, the stock ultimately broke decisively through the 50-day moving average and it was just wrong to stay long. Support is down at $300, but I wouldn't bother to hold it until that level is tested. Look, the trend is broken and the best NFLX is likely to do will be to trade sideways for a while. The worst it is likely to do will be to fall below $300 and keep going.


 

SolarCity is back to test the mid-December low of about $50. The stock formed a rounded top that failed to confirm the uptrending resistance line that had been connecting the peaks over the past year. While traders liked the earnings report released a couple of days ago, they only liked it for a minute.  Now the stock is back to test support. If SCTY falls below $50, I'd short it.


 

Priceline.com had been on a tear during 2013 but peaked a couple of months ago when it tested $1,400. Since then, the stock has retraced the entire move from the February low to the March high. A typical head-and-shoulder pattern has more rounded shoulders that resemble obvious peaks, with a higher peak in between. This daily chart is a bit different, showing the obvious head in early March. But the two shoulders are really just areas of sideways trading ranges. Still, the dynamic is the same and a break below $1,100 bodes poorly for shareholders. You can see that support has already been broken.  Seriously, a decisive break of this level puts $800 in play.

There, I said it.


 

Yesterday Tesla fell in response to disappointing earnings, but the stock held at the 200-day moving average, which is currently at $176.40. If this is all the bulls can do, then the market is not seeing this lower level as an attractive price. Any break below $176 would be my signal to sell/short TSLA. Any rally back to test $200 would be an even better entry. Short high, cover low.

Be careful out there.

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