Long META @498.87-oversold and it doesn't usually stay that way
Updated
Full disclosure: I'm not making this trade. That said, here's my case for it and what I'd do if I did.
META almost never stays oversold more than a day or two. In fact, if I couldn't get a sub-499 fill I would def not chase it because likely I already missed the move for this kind of quick trade. Best hope would be a general market malaise Monday to get in at this point - and I think we may get that. More on why later.
The other reason I wouldn't chase is it isn't generally a big win doing what I'd do here. Holding until overbought normally produces a 5-8% gain, which is fine. But META is prone to big moves in either direction on earnings and I don't like to mess with that, so with earnings being soon, this is an in and out trade and getting a good entry price is more important in this situation.
So, I'd get in at Friday's closing price or lower, and get out as soon as the trade is positive. A day or two usually. By the end of the week almost always. I would add if it stays overbought because the last time it was overbought for more than 4 straight days was about 2 years ago. It's maybe a percent or two gain, but it's a pretty reliable trade lately with a high win rate so I'll pocket a quick profit and move on.
This entry-exit technique is 22-2 over the last year with an average return of just under 1% and an average holding period of just under 2 days. The two losing trades were both less than 1%, so I view this as a relatively "safe" trade as well. It's just not that profitable, so it may not be worth the trouble. If I wanted to roll the dice close to earnings, I could wait until it's overbought and profitable to sell. I didn't do the average return math on that, but all 24 trades were profitable doing that, and the return is higher - 5 to 8% or so just estimating.
Actually, I think I just talked myself into the trade. We'll see what Monday brings. I have a feeling it could be a down day, especially with somebody taking shots at Trump today. I assume markets don't like attempted assassinations of Presidential candidates, especially not in the divisive political climate we have now and political violence becoming more normalized by the day. That's bad for democracy and bad for business long term I think. I hope I'm wrong about the market response to it. If the market sells off hard at the open I'd wait either until the end of the day to get it lower, or catch it at Friday's closing price coming up from the lower open if that's what happens.
Whatever I decide to do I'll update it. Have a good weekend!
META almost never stays oversold more than a day or two. In fact, if I couldn't get a sub-499 fill I would def not chase it because likely I already missed the move for this kind of quick trade. Best hope would be a general market malaise Monday to get in at this point - and I think we may get that. More on why later.
The other reason I wouldn't chase is it isn't generally a big win doing what I'd do here. Holding until overbought normally produces a 5-8% gain, which is fine. But META is prone to big moves in either direction on earnings and I don't like to mess with that, so with earnings being soon, this is an in and out trade and getting a good entry price is more important in this situation.
So, I'd get in at Friday's closing price or lower, and get out as soon as the trade is positive. A day or two usually. By the end of the week almost always. I would add if it stays overbought because the last time it was overbought for more than 4 straight days was about 2 years ago. It's maybe a percent or two gain, but it's a pretty reliable trade lately with a high win rate so I'll pocket a quick profit and move on.
This entry-exit technique is 22-2 over the last year with an average return of just under 1% and an average holding period of just under 2 days. The two losing trades were both less than 1%, so I view this as a relatively "safe" trade as well. It's just not that profitable, so it may not be worth the trouble. If I wanted to roll the dice close to earnings, I could wait until it's overbought and profitable to sell. I didn't do the average return math on that, but all 24 trades were profitable doing that, and the return is higher - 5 to 8% or so just estimating.
Actually, I think I just talked myself into the trade. We'll see what Monday brings. I have a feeling it could be a down day, especially with somebody taking shots at Trump today. I assume markets don't like attempted assassinations of Presidential candidates, especially not in the divisive political climate we have now and political violence becoming more normalized by the day. That's bad for democracy and bad for business long term I think. I hope I'm wrong about the market response to it. If the market sells off hard at the open I'd wait either until the end of the day to get it lower, or catch it at Friday's closing price coming up from the lower open if that's what happens.
Whatever I decide to do I'll update it. Have a good weekend!
Note
OK I really have an issue with mixing up overbought and oversold when I write these, I don't know why, but I apologize. Buy when oversold and sell when overbought and profitable is what I always mean to say. My deepest apologies for any confusion. No market malaise today, but the sub Friday's close entry was possible and this one day trade idea is well on its way to achieving its goal. Good job META.
Note
That's what I get for praising META - it turned around and went down as soon as I did. The good news is that I decided to pull the trigger since it came back to Friday's closing price. I will be quick to pull the trigger and get out though. If it closes up today, I'm out. And at $500 a share I will not add.Note
Well, make that 22-3. I shouldn't have talked myself into this one. Out at 476.16. 4 days = -4.5%👎. Figures the time I take it, it's the worst return of the entire 12M. Oh well. Sometimes you lose.Note
Trade results notes (for me)
-Not an oversold trade
-4.5% in 4 days
Avg return = minus 4.5%
Avg hold = 4 days
Avg annualized return = minus 283.5%
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