Fabrinet (FN) took a big spill today but is still in trend. Do you buy the selloff? Here’s my take. (October 11, 2016)
FN
I want to look at Fabrinet ( NYSE:FN ) here, and here’s why: We had a really, really nasty day today on this. Just in general the market was under distribution and lots of it. This was down 8 percent. This is an interesting chart, first of all, this morning Piper Jaffray reaffirmed its price target on Fabrinet ( NYSE:FN ), 53.00. So they reaffirmed their price target on this stock, and in response sellers sold the living snot out of it. So what do we do now? We could look at this and say, “Got to buy!” Got to buy this stock because we could see that one of the last times this sold off it sold off on pretty heavy volume. Look what happened to the stock: It rallied up. Ultimately they announced great earnings, and then the stock sold down on heavy volume. Ultimately, it continued higher. Great!
Well, we have had a couple other down days like this. We have had this one here, and then finally this one here today. So we have four red bars here, and this one here was on really, really solid volume, much higher than average volume. So the issue is, when you are looking at a stock like this and you are seeing all of these nasty red bars, and they are all on pretty decent volume, above average here. WAY above average here. Above average here. And certainly above average here. This is institutional selling, this is institutional distribution. It is making the stock look really ‘toppy’ and of course you look and see where it broke out, it has gone up 135 percent since this initial breakout, basically in the last year. So I would say, the stock is toppy.
The fundamentals on this company, though, are really, really good, they are really strong. So what do we do? I will tell you what I do, I am not doing anything right now. I don’t own a position in the stock. If it starts to rebound a little bit tomorrow, to be perfectly honest with you, I wouldn’t buy it then either. And here’s why: Because we have got A LOT of pain in this chart. Everybody that bought here, in the red box, is a loser; they are not happy about it. In this dicey market you see this stock start to move up, you are going to get A LOT of selling from all of these unhappy folks who just want to dump the stock. You can buy the stock though, as long as you respect the 50-day moving average. If you do that, then you are going to be putting a stop right down here.
Lets say you put the stop at $40.91. How about that? So you are basically risking 1.5 percent, something like that. You can make that trade. Here is why, though, that I am not going to make that trade: Again, because of so much pain in this chart. But also, look at the amount of time that it took for the stock to regain its upside momentum after this kind of sell-off. It even fell back to kind of test that low. But this is quite a while for the stock to actually start rallying and moving higher. So I don’t feel like I am compelled to get it while it is hot, get it while it is down here. I think there is going to be more time to buy this stock after it has had a chance to stabilize. And also, and this is really important, what if all of this is already baked in to the price of the stock? They have great fundamentals, really, really strong growth, well it has already had a heck of a run.
So what if tomorrow maybe the stock rebounds and then on Wednesday the stock implodes down here. I don’t know whether it is going to do that or not. I just know that there is a risk of that after all of these high volume sell-offs. So I don’t want anything to do with this. I am going to follow the company. Maybe there is a short trade to be made to the upside. But frankly, that is something that somebody else is going to have to make without me.
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