A tale of two disasters — how to trade Palo Alto Networks (PANW) v. Zumiez (ZUMZ) (March 10, 2017)


Lets look at, basically, how we stay out of bad situations and get into situations that are getting a little bit better. That is kind of the best way I could put it. Here is the deal: I want to look at Palo Alto Networks ( NYSE:PANW ) and then we are going to look at another stock. You can see how PANW ( NYSE:PANW ) sold off on (no other way to say it) really crappy earnings and ultimately fell back to 115.00. You have got to look at something like this, when it happens, look where the price opens. And ultimately, if you are going to be buying that stock in an, “Oh golly gee, this is an awesome buying opportunity,” methodology, you need to see it rise above where it opened. That tells you that the relative strength of aggressiveness, and listen to me again, the relative strength of aggressiveness between buyers versus sellers is on the buy side.

In other words, buyers are soaking up all the stock they can get and then they will take it at even higher levels. That means that sellers are basically exhausting themselves, “Okay I just got to dump this stock,” and then the stock will rally as soon as they have exhausted themselves. The fact that this stock did now rebound off of 120.00, tells you this is a stock that I have to stay away from. All we are doing here, we are looking at volume, still under distribution, one little tease day here, on Thursday, wasn’t enough to flush out all the sellers. And then we actually get to a new low here. Okay, this is definitely a stock that is not going anywhere, see it is moving even lower, and then suddenly, Boom! One day this rallies.

So here is the thing: You are buying this stock here on the open, expecting a rally and you are sitting here for how many more days? Over a week. And you are waiting almost, basically almost two weeks. You are waiting for the stock to get back to where you can sell it. So here, you have bought wrong. You have held it, and maybe you are going to get your money back; you probably will. But you have wasted a lot of time and a lot of money and you have missed out on a lot of other opportunities.

So compare that to Zumiez ( NASDAQ:ZUMZ ), which just reported on Friday. You can see what has happened here, it is a different deal. Again, the stock gapped way down, a pretty big decline, almost 14 percent basically from where it opened. Traded even lower, but then ultimately rallied back above the open print. Again, as compared to this, Palo Alto Networks ( NYSE:PANW ), that didn’t. So when you are looking at this type of thing, Zumiez ( NASDAQ:ZUMZ ), you say, “Well, I don’t know if I want to buy it or not.” Look at how the thing opens. The stock opens here, sells off, and then ultimately starts moving above this level. It didn’t really rally until the close, right into the end of the day.

So what is the trade here? For Palo Alto ( NYSE:PANW ), I have got to say, you will probably make some money if you buy the stock and it moves above 120.00; but there is still a lot of pain here. On the other hand Zumiez ( NASDAQ:ZUMZ ), if the stock rallies above the high here of 18.50, and guess what? It is 18.40 now. If it rallies above 18.50, I am just going to go ahead and set a price alert for myself; “Buy this for a snapback hammer trade.” We are just going to do this for a week, maybe I will go ahead and start it 5-minutes later, but I almost don’t want to restart this. Because you know what? If the stock does what I think it is going to do, you are probably going to get maybe $1.00 out of this, which is actually, on an $18.40 stock, that is a pretty nice return. Anyway, just wait until the stock moves above 18.50 and then if you can get 5, 6, 7 percent out of it, I think that is a pretty good trade.

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