FireEye (FEYE) = sharp stick in the eye (November 05, 2015)
Lets talk FireEye ( NASDAQ:FEYE ); and lets talk specifically about buying stocks before earnings. You can see where this is now. This is what the stock looked like a few days ago. We’ve had these lows. I remember covering this, actually relative to what I am about to say, about this so called triple bottom. We look back in hindsight and see that this is a triple bottom when the stock goes up, which it did one, two, three, here it’s moving up. So this was your “triple bottom”, a little volatility squeeze and the stock’s off to the races. Okay, that’s great! Once it breaks down, once this uptrend is over, from a technical standpoint, from a technician’s standpoint (I feel like I can speak for the industry because I’ve been doing this for 20 years), then this move is over. We don’t really care about these anymore.
I the meantime it’s interesting, it’s Great! you can talk about them, you can point to them on a chart, but this support, this everything, is over. The last one was a year ago. I look at support and resistance and after about 5 or 6 months it just kind of loses it’s relevancy for one particular reason, this volume. The stock changes hands enough to where suddenly, lets just look way back here, my bet is, if this stock moves up to test this high, and ultimately it probably will, this is a good industry, it’s a GREAT industry, cybersecurity. This is not going to really be very relevant because it will have been years ago. So my point is this, it’s not particularly good trading to look at a pattern like this and just tacitly assume that that support level will hold. Because when you tacitly assume something like that you’re going to wind up getting clipped.
This isn’t a rule that I made up, it’s just one that I learned from a lot of people who are a heck of a lot smarter than me, smarter than I will ever be. It’s risky to hold over earnings. You can do it, you should do it if you’ve got a long-term portfolio. Hey, I held Facebook over earnings, Yippee! good for me. Do you know what? I didn’t sell it today. It’s probably going lower, but I’m not trading it. I’m holding it. I’m making a bet on “Zuck”. The point is, if that is not your game, like I’m just holding it for the long-term and the company’s close to reporting earnings, don’t buy the stock assuming that it’s going to move higher. Particularly if the short interest is not like super, super high. Here, the short ratio, number of days to cover, 3.4 days. Basically very, very low short interest. Oh! 13 percent of the float is short.
Basically what I’m telling you is, if you’re looking for a short squeeze you’ve got to do one thing. Find a new ticker. So what do we do? You’re looking at this stock and it moves up on a CNBC recommendation and that’s just great. Everybody gets sucked in, Boom! Now it falls down here. I would look at this NOW as being a good buy. Very, very heavy volume. That’s not to say that the stock is not going to go lower. I don’t think it will because I bought some today. But here’s what you do, it all gets back to risk management. I’m looking at this and if I think the stock is not going to go lower then therefore, ipso facto, I believe the low today of 21.75 is going to hold, I just think it’s going to hold. If I didn’t, then I wouldn’t have bought, I’d be waiting.
I can make this determination now because there’s no foreseeable catalyst that’s going to make this stock jump like it did here. I mean this puppy is down like 25 percent. That’s a lot of percentage in the wrong direction. So I don’t have to worry about some big catalyst that’s going to cause the stock to jump through my stop. It won’t. So I can do one or two things (1) I can put a stop just a little bit below today’s intraday low of 21.75. I can buy the stock now with comfort and I’m basically risking less than $1.00; risking about 80 cents, 85 cents or something like that. (2) I could also WAIT for the stock to come back up above here and THEN buy. I could do that, or I could split the difference. I can buy some now and then when the stock starts rallying back above of today’s intraday high of 24.09, when it starts doing that then I can add to the position.
But the bottom line is this, your risk is GREATLY increased if you are buying a stock just before earnings, it’s just really, really risky. You can make a lot of money, that’s great. But you can also lose a lot of money. And know this, it’s just a function of math, if you lose money versus making money, the same percentage, you actually have to make MORE money than you think to get back to even. In other words lets say you lose 20 percent, you have to make 25 percent to get back. Again, it’s a function of math. But here’s one thing, and this is why I’m kind of pounding the table now, and then I’ll tell you why there’s also the importance of using stops, like I said, a little bit below here is good.
We can expand these Bollinger Bands out to three standard deviations. Now it’s like 99 percent of the closes, give or take (rounding error). Ninety-nine percent of the closes of a stock are going to be inside of these three standard deviations. You can look here, virtually all of them are. Here, maybe this was down below, but here when it gapped down, what happened? Boom! It recoils right back up against there. So I just expanded this from two standard deviations to three, and lo and behold, what do we have? We have a stock that’s breaking the rules. It’s breaking the laws of statistics, it’s not supposed to do what it’s doing now, it’s going to probably be smacked tomorrow, beaten soundly about the head and shoulders. And so, from a statistical standpoint, the way to be on this stock right now is on the long side, WITH a stop.
Now, you can say, “Well, I’m just going to put a stop below $20.00 or so.” That’s fine, you can do that, but here’s your risk there: you risk getting stopped out right when the stock turns. Guys! This stock is not going to zero. It’s not going to zero. It just maybe kind of feels that way if you bought it a few days ago in anticipation of earnings being positive and the stock’s going to go up just because it’s down at a low. Well, now it’s at a new low. So we look to buy here. But here’s a point, a while ago, it was last week or whatever, when Valiant ( NYSE:VRX ) was up at a high, certainly higher than it is now. When I was talking about this Andy Left dude, you know the pump and dump guy from Citron, about they had a bearish report on Valiant ( NYSE:VRX ), the guy sends out a tweet, basically saying, “Whoa! Wait until Monday, it’s going to be the mother of all data dumps or whatever it is. And then he comes on Monday and he goes, “Well, lets just not make me the story.”
So my suggestion was, you look at this, you look at the stock, where ever it was, I forget where it was, and you decide what your risk is, then you place a stop. This is what a good trader will do, he looks at this and says, “You know what? I’ll take my shot.” By the way, maybe your shots to the short side. Whatever floats your boat. Long or short you’re going to be wrong on trades. You can have a batting average of less than 500 and you can still make a lot of money, as long as you’re managing your risk. So it doesn’t really matter which way you’re going on a particular stock, as long as long as you have a risk management plan that you’re going to stick with. So, lets say you’re buying this stock. Well now you’re getting a little nervous, Boom! Now you’re out. You take a shot here on Valiant ( NYSE:VRX ), and I think I talked about this twice, and I’m not a guy that tries to catch the bottom; bottoms do, although, tend to be much easier to catch than the tops.
But the point is, you look at a stock like this, you think it’s going higher. Great! I’m a buyer. But the put a stinkin’ stop in place. And that’s what I’m saying here with FireEye ( NASDAQ:FEYE ). You’re a buyer here. Look at this, three standard deviations, which by the way, Valiant broke all kinds of rules back here. Right? Well, not so much here. So we look in FireEye ( NASDAQ:FEYE ), we decide we’re going to buy this stock. I’m in, I’m in. Okay, so now the stock’s going to move back up. I’m going to be a superstar by buying right here at the low. What happens if the stock keeps going? Maybe it’s under more liquidation. You know their growth has basically sucked. Sorry, I’ve got to say it, they don’t have any earnings. Their growth, their revenue growth over the past four quarters has been this: (and think about what’s really happening here with my numbers) up 150 percent, then up 69 percent, then up 56 percent, then up 45 percent. Up is percentage of revenue growth versus that time last year.
So we’ve got 150, to 69, to 56, to 45. In other words, sales, or revenues, are still growing, but the rate of growth is declining. That is why this stock has been declining. I know this video is going on and on, but man, this is important because I’m trying to make you money. I don’t care if you’re a member or not, I don’t want to see you lose your dough. This, PureFunds ( NYSEARCA:HACK ), would be my preference on cybersecurity. I would just look to buy the HACK ( NYSEARCA:HACK ), the ETF for cybersecurity, certainly as opposed to FireEye ( NASDAQ:FEYE ), except for a trade. Anyway, I’ve gone on a little longer than expected, but that’s what I do. So if you’re taking this stock now, have a stop in place. Also, know that you are buying this stock as of now, at an all-time low, but that’s not to say that the stock can’t go down. If the stock does start moving, say back above the 24.00, I think you’re going to get a pretty good ride back up more to the median. So don’t be buying stocks before earnings. I hate to tell you, but I’m going to, that’s just stupid. Don’t be stupid. Stupid and broke is no way to go through life.
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