Tech continues to impress. The run from Advanced Micro Devices (AMD) after its initial earnings selloff has been nothing less than amazing. Shares have soared from $81 to nearly $108 in 11 trading sessions.
Nvidia (NVDA) tacked on 5% as it and AMD helped pace the semiconductors to levels not seen in more than a year.
Netflix (NFLX) popped 9.2% on the news that its ad tier has nearly 5 million monthly active users, prompting a few words of optimism from Wall Street.
And the list of big-cap technology stocks rolling to breakout highs could go on from here.
Of course, this kind of action brings out the top callers. I understand words of caution about getting too greedy if you have winners, but calling tops, or bottoms for that matter, tends to be words of stupidity.
Sure, you might get a slightly better return if you call the top correctly, but the risk you take often doesn't warrant the return you see. If you call a top, go short or exit, and you are wrong, you could cost yourself quite a lot. The action on Thursday felt like FOMO, but that fear of missing out can easily extend past a single day. It can also run much higher than what might seem logical to you.
Rather than calling a top, use a trailing stop on a position if you are long. If you want to short, then watch for a break of that trailing stop. When we get extended on a move, like what you can see with AMD, I prefer to use a short-duration exponential moving average (EMA) as my stop trigger.
For instance, the 10-day EMA sits at $98.79 as of yesterday's close. That's a long way from $107.93. That's probably a little too much room for everyone except the most aggressive trader. Using something like the 5-day EMA at $102.43 for a trailing stop on at least part of the position is likely more tolerable. I view that as the better capital management play. Heck, I might even consider yesterday's low for a partial stop.
Outside of technology, the market has presented challenges this year, so capital preservation should be top of mind. Another interest rate hike, another inflation spike or a failure to resolve the debt ceiling issue could quickly stop the run on equities. Taking some profits and having fresh capital to deploy puts the power in your hands. We want to maximize the gains as much as possible, though; hence the trailing stops rather than the top calls.
As a trader, you can do quite well avoiding the outlier portions of a move or a trend and simply trading the meat.
One last note I feel didn't get enough mention: Famed investor Sam Zell passed away yesterday at 81. Many can write a better summary of his life, accomplishments and the deals that didn't go his way. I enjoyed his views on real estate and distressed holdings and will miss hearing from him.
