Thinking about pulling the plug on Roku (ROKU)? Here’s why you don’t want to do that. (September 28, 2017)


We are looking at one big old long bar here. Here is the deal on Roku (NASDAQ:ROKU ): Wouldn’t it have been nice to have bought it right at the open? And you turn around and make a gang of money by the end of the day, about a 50 percent return on your money. We have seen a couple recent IPOs, Blue Apron (NYSE:APRN ) and Snaptwit (NYSE:SNAP ) come to mind, where it hasn’t been so easy. I want to talk about trading these IPOs like this, because sometimes you get chicken, other times you get feathers.

How are we going to do this if you want to trade an initial, like the first day of trading? First of all, if you have got time to sit at your computer all day, or after this stock opens, then you sit here and you look at this stock, and you are buying it. The stock opens up here, and this will be a key point, 15.75 is the low. This level here, guess what that is? That is your reference for your stop. You are buying this stock, wherever you are buying it, $18.00, $19.00 wherever it is; 15.75 is support, you put your stop just a little bit underneath there, 15.70. You are buying the stock. By the way, how can you do that? You have got a stop at 15.70, the stock is now up to $18.00, 18.50. That is a pretty wide stop.

Here is why you do that: You do it because this is a very, very volatile IPO. It is one of those that when you look a CNBC they are showing the tick chart and they are talking about it and it is rambling all around. Okay, you don’t want to mess around in that stuff. If you decide you want to buy Roku (NASDAQ:ROKU ) then you buy it and your size is small enough to where you are saying, “Okay, I know this is going to be a volatile issue. I am buying it, wherever I am buying it, here, or here, anywhere in here. I am buying it and I am going to ride that horse until I get bucked off.” Getting bucked off means the stock comes all the way down and trades to a new low because that tells me that there is not enough demand to push this stock up. It is going to be a bust, the stock trades down and then you are done. It didn’t do that here.

Let’s say you bought wherever you bought here. Whatever, you bought somewhere in here. You are watching the stock. As the stock breaks out of this little pattern (this is a 5-minute chart), the stock breaks out, now you are adding to your position, somewhere in here. Now you have taken this stop here and you have removed that and instead, you have moved it up to about here. Okay, that is on your initial purchase so you should be kind of close to break-even. Then the stock continues to move; maybe you are buying a little bit more.

By now you have kind of got a pretty good position. You have got a pretty full-size position. The stock keeps moving up, and remember you are in this for the long haul. You say, “I am in for the day.” But then the stock reverses, and you see the kind of volume, and you also see it is noon. So some traders were sitting there, they are trading through their lunch hour and then finally towards the end of it they are going like, “Hey man, it is Thursday. We’ve got Thursday night football on. We have got to get some cocktails. Let’s leave.” And so now the stock starts moving down.

Now you are taking partial profits. Not closing out your position; it would be nice if we could close it out here and then buy a new position right down there. You don’t get to do this. Trading is like golf; it is a game of misses. He who misses the least generally wins the game. So you can sell some on this first reversal, but the thing is, you are just keeping the rest of your position. It is easy to analyze this pattern because it has already happened. But when you are doing it in real time it is a totally different game. Again, that is where you say it is definitely a sea change right here.

But we don’t know where this is going to go. Remember, the stop is way down there ultimately. You are not really sure so you have to have the type of position here that you just look at it and say, “I am just buying the stock. I know where I am going to be out at for a loss. But I am going to hang on to this thing.” Because here is the thing, the stock opens up a little before 11:00. By 3:00, certainly, as we go into the close, it is not being sold. It had its little bout of selling here but by 3:00 it is not being sold.

So think about it, you and I aren’t the only two people looking at this stock. This stock is very, very heavily watched. Very heavily traded. So what is happening? Nobody is selling the stock. So if nobody is selling the stock why do you want to sell yours? You let it move around a little bit but you have the confidence to know that nobody is selling the stock. So you hang onto it and then 4:00, look what happens after hours, this thing continues to move higher, albeit like zero volume. But the point is, nobody is selling the stock.

So you are hanging on to this stock and then tomorrow morning, frankly, I am looking for this stock to move up again. Now, where it is going to go by about 9:35 in the morning, who knows? But this is a stock that is under buying pressure right now. There is buying pressure for this stock and we are not pounding the table saying you have got to buy Roku (NASDAQ:ROKU ). Although if you do want to pull the plug on your cable, you want to buy Roku (NASDAQ:ROKU ) and that is part of the attraction too.

Look, I am going on and on about this. But the point is, this is a stock that opened here. It closed here, about a 50 percent run. This is not being sold into by institutions, this is being bought. I want you to be there. If the stock starts falling back tomorrow go ahead and close out your position. But otherwise, I think you have a nice little run here.

Free Chart

Leave a Comment