Look at what’s happening to Linked In (LNKD). It’s down so much…but not down enough. Remember this when you’re looking at SolarCity (SCTY) tomorrow morning. (February 09, 2016)
Linkedin ( NYSE:LNKD ). Here’s why I want to talk about this stock: I mentioned this a couple days ago, as far as buying it in the after hours. I forget exactly where I bought it, but I decided to do a little after hour trading and I got stopped out after hours, because it started going the wrong way. My after hours trade (which was a small loss, they’re never big ones, at least if I’m doing them right), but my after hours trade really applies here too. I bought the stock based on MY assumption, based on my theory that whatever the price was (at the low there in after hours), and for cryin’ out loud it might have been at 150.00 or something. But I bought the stock and I said, “This is the low. This is why I’m buying it because I think this is the low.” So we’ll just go ahead and use this as the lesson. So just assume that this is a 5-minute or 1-minute chart after hours and I’m looking at this and I say, “Okay, I want to buy this stock because I think this is the low.? So I buy it about here, whenever it goes up a little bit and then the next thing you know it starts drifting down, and down further. “Holy crap! I’ve got a big loss on my hands.” No, I don’t, because I put a stop right underneath there. Because my ENTIRE, I don’t like Linkedin ( NYSE:LNKD ), I think it’s tinder for people with neckties. My whole premise for buying this stock was that this is the low. So when it turns out that that’s NOT the low, then there’s no fuss, no muss, no emotion, no anything. It’s just like, “Well that’s the cost of doing business. I had an idea. I took the idea for a ride. The idea didn’t play out. Nothing personal, I’m out or here.”
So that was then, this is two days later. This is why I want to talk to you about this: Because you could be buying the stock this day (which was Monday) under the thesis that, again, this is the low, we’ll say the low is 102.81, we’ll call it 103.00, this is the low. Now, a couple things (one I really hadn’t intended to get into but I’m on a roll), this is higher than this. This has gone down way too much, this is going to snap back. If it was going to snap back, a reversion to the mean, it wouldn’t do this, it would have done that, or it would have done that. It would have done something other than just sit around here doing basically next to nothing. Not going lower, but not going much higher. The only reason this stock is staying down here at this level is because there’s still a lot of selling pressure selling into any strength. So anybody that’s buying, they can can get all they want and they don’t have to pay up for it. Well that’s not what you want to see if you’re already long the stock. You WANT to see people having to pay up for the stock, but they’re not. So if you BOUGHT this, this was your idea, 103.00, that was the low, the stock has got to stay above that. Okay, I guess, I would have even gone here and said, “Pff, 106.72, that’s my new low.” The stock’s DOWN, it DIDN’T snap back, but maybe I’m buying this wrongly and naively expecting that this stock is going to rally further. That’s really okay too, AS LONG AS YOU HAVE A STOP either here or here. If you have a stop here you can trade in larger size because you’re not risking that much in dollars. If you have a stop down here, then you need to trade in SMALLER size because the distance from where you’re buying and where you would be selling is greater than if you would be selling here.
So what happens then today? The stock trades lower. Either way your stop is hit. This is what I want you to understand: Okay great, $100.00 is support for this stock, but it’s really not trading technically right now. It’s just under big distribution. So if you’re not long the stock, you know what guys? There are easier trades out there to make, go make one of them. But if you are long the stock, then this is what I would suggest: Look at the weekly chart, this stock has been down here, they’re not growing. A company that is not growing tends to go from Northeast, Northwest, down to Southeast. That is what this thing is doing. So don’t assume, just because it has fallen so much, that it can’t go lower, that happens all the time, stocks just continue to go. So what I would suggest you do is, if the stock starts trading below $100.00, then you need to sell your stock. “Oh but Dan, I’m worried that I’m going to be selling right at the bottom.” Okay, here’s how you handle that; I’m giving you permission to sell if the stock goes below $100.00. And here’s how you get back in without being ticked off at Dan for causing you to sell right at the low: If the stock trades back up (and you decide this is your plan when you’re selling the stock), if the stock trades back up to 102.00 I’m going to go ahead and buy back 50 percent of my position, so at least I’m back in. I’ve lost a couple bucks because I sold it a little below $100.00, I’m buying it back at 102.00 but I think the stock is going to snap back big so I don’t want to be left on the sidelines, so I’m buying it back at 102.00. And THEN, if the stock goes up to say 103.00, then I’m going to get in with the same position that I had, that I sold out down here, “Because that stupid Fitzpatrick guy told me to sell if the stock trades down below $100.00.”
So what have you done? You have taken risk completely out of the game, downside risk, by selling just a little below $100.00. You’ve taken your loss, okay, sorry about that, You’ve taken your loss. But listen to me, there are two sides of risk. There is also the risk that you’re going to miss out on the wonderful upside that Linkedin ( NYSE:LNKD ) is going to have as soon as the market realizes what a wonderful opportunity this is. So your risk, in exchange for getting rid of all further downside risk, you are risking on missing out on a $2.00 move on 50 percent of your stock, and a $3.00 move on the other 50 percent of your stock. So you average those two together and you’re risking 2.5 percent on your entire position and in return, basically, you’re taking, 90.00, 85.00, 80.00 out of the equation. That’s a good risk/reward to me, and that’s one of the ways that you can sell a stock that just seems like you don’t want to sell it because you’re afraid you’re going to be selling it right at the bottom, “Oh my gosh, I can’t do that!” And you wind up just riding it into the ground. How many folks do you think held the stock when it fell this low? After all, think about this, this thing took 1/3 haircut, 33, 34 percent. How many folks do you think held this stock? Or they bought it, “Oh, this is the low, 125.00, I’m in.” And then they’re still holding it when it’s fallen another 20 percent. They could have avoided that by just having an exit plan. So you know what? I’ve just given you yours. Seriously, I’ve just given it to you. Now it’s up to you to execute it.
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