Our IPO strategy on Sprouts (SFM) is working nicely. Here’s an intraday view.
Discussed in this article: Sprouts Farmers Market Inc. ( $SFM )
Last Thursday I covered Sprouts Farmers Market ( NASDAQ:SFM ) and I was noting that this was fitting into my IPO strategy, which is really pretty simple.
You look at the initial high, where ever the stock trades, might be on the first day like with respect to Facebook ( NASDAQ:FB ), or might be within two or three days like here, it could be much longer. But you look and see where the stock is trading in relation to that first over exuberance high that ultimately leads to a pullback.
It’s amazing how many times a stock comes up against that same level and then pulls back. I’m not talking about this, but I’m talking about some sideways consolidation. Maybe ultimately it drifts higher, but it’s amazing how many times the stock struggles with this, pulls back, and then ultimately does blast through.
You can trade this stock in here, I’m not saying not to trade this stock in here, I don’t care, knock yourself out. What I’m saying is, on this particular strategy, what you do is you wait for the stock to close at a new high, a new high relative to this. It would be an all-time high. The first all-time high was right here, that was the all-time closing high.
So then what do you do? You buy the stock. So let’s see how that played out on Friday. You can see the stock gapped up, but you can see the stock, right off the bat, came up here, and early on blasted off. So if you’re in here at 42.50, you get a couple bucks, you get a nice five percent move pretty quick. But then the stock, after that it just kind of petered out.
By the way, this was what was happening to the market, everything was trading down. The only thing that wasn’t was this one, Facebook ( NASDAQ:FB ), towards the end of the day. Netflix ( NASDAQ:NFLX ) kept trickling sideways. Tesla ( NASDAQ:TSLA ), always a crowd favorite, trickling sideways. And Sprouts ( NASDAQ:SFM ) pretty much did the same thing, came up and then was trickling sideways.
We got a little buying into the close, but here’s the deal; if you bought this stock and flipped it for a day trade, nice trade. I’ll take five percent on a day trade anytime. But now, the thing is, I’m not going to say it’s formed a tombstone doji, where the close and the open are very close together right at the intraday low. That’s not the case here.
I think this is still what I would call a power move, a very nice move higher on super strong volume. In this case though, I think the stocks due for a rest, particularly with the market resting. So the stock continues to close up above the upper Bollinger Band, which is a sign of strength, that’s a good thing.
But I can’t buy this stock right now, hopefully you get a couple of red days, and then look to buy this stock if it pulls back to 41.00, something like that. I have no idea what the valuation is on this company, I’m sure it’s probably pretty high.
Every time I go into one of these supermarkets they’re always pretty crowded, and their food is always really expensive; not like whole paycheck otherwise known as whole foods, but I think this stock is ultimately going to go higher, you just want to be careful now about how you enter it. But the IPO strategy has been triggered, so it’s a stock that you want to own.