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Adam Alvarez
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As a conservative, both politically and economically, I strive to look at the long term risks of all trades. I'm also in favor of and recognize the importance of implementing stop loss orders. When it comes to trading, the fear shouldn't be of failure, but the unwillingness to accept failure.
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  • Why GoPro Shares Could Rise With Ensuing Lock-Up Expiration

    After pricing its shares at $24 in June, shares of GoPro (NASDAQ:GPRO) at one point had quadrupled in value in less than three months. In just over two months since, however, the stock has lost nearly half of its value. With the IPO lock-up expiration scheduled for December 23, some might assume even more selling is all but guaranteed. Nevertheless, history shows this expiration could provide the way for a trend reversal.

    • In the two weeks leading to the expiration of its lockup period, Yelp (NYSE:YELP) shares fell as much as 40 percent.
    • For GoPro, the last two weeks have seen a 25 percent retracement despite a share price registering at nearly three times higher than that of Yelp upon entering its expiration.
    • During the same two week timeframe and, despite harsh selling, Yelp experienced total volume of just 10.5 million. This was only slightly higher than the 10 million in volume experienced in the prior two week period.
    • In the face of a nearly 27 percent drop throughout the month of December, GoPro's daily volume has eclipsed 10 million only once. There were seven such occurrences in November when shares finished the month flat.

    Now although GoPro's initial IPO far outperformed that of Yelp, such a differentiation could arguably be diluted by the fact Yelp, unlike GoPro, had negative earnings for its first nine quarters as a public company.

    Still, such a comparison only taps into the positives regarding the future of GoPro and the company's stock. After delivering earnings of $0.12 in the third quarter which beat the consensus of $0.08, fourth quarter guidance is anticipating a profit of $0.69.

    However, there remains reason to believe that number will be beaten soundly. Last month, Piper Jaffray analyst Sean Naughton anticipated strong holiday sales for the company while recognizing solid Amazon sell-through developments as a very encouraging sign. He maintained a $90 price target.

    By the beginning of December, those sales began to come to fruition as Pacific Crest Securities analyst Brad Erickson noted the company's Hero 3+ camera as selling out across many stores on Black Friday.

    Of course, further positive news could do far more than simply alleviate some of the selling pressure currently inundating shares. By the end of November, short interest in the stock was registered at over 37 percent. As a result, if shares do enjoy surprising strength following the lock-up expiration, movement in shares could easily be exaggerated towards the upside.

    Now certain developments and anticipation alone don't necessarily alleviate concerns regarding the current and arguably inflated valuation of the stock. Projected full year 2015 earnings of $1.25 are also unlikely to erase such question marks if shares do soundly outperform going forward. Still, with positive reviews from many analysts, strong sales, and a recent upgrade to overweight by JP Morgan, it's naive to merely assume the recent downtrend has no choice other than continue.

    Depending on risk tolerance, stop loss orders should be implemented between $45 and $49 per share while profit taking should be considered between the $60 and $70 level dependent on investment goals.

    Tags: GPRO
    Dec 22 10:46 AM | Link | 1 Comment
  • What To Learn From Apple's Fall

    Since Apple (NASDAQ:AAPL) shares began their puzzling descent last September, the overwhelming and unanswered question of why the fall occurred has continually baffled investors. Sure, there have been a multitude of reasons thrown out including the argued poor performance by some of CEO Tim Cook, stronger competition from cheaper companies like Samsung and the inability of the company to bring about the next big thing in recent months.

    I could even see the looming economic uncertainty, as I've mentioned before, as playing a large role.

    Still, the reasons for a stock's movement is often less complicated than we tend to make it seem. In response, all we can do is learn from such occurrences and looking at a stock's chart goes a long way in that process.

    From Apple's low of $82.57 from March of 2009 to the high of just over $400 shares eclipsed in late 2011, the climb for the stock was persistent, yet steady. Shares climbed, but they also had months they traded flat or even pulled back. The company grew with earnings and new products, but expectations remained realistic.

    In just under three years, shares climbed approximately $300 for an average gain of $100 per year. However, that persistent and defensible trading pattern gave way to ferocious buying. Within the first four months of 2012, shares climbed almost $250 or well over double what that had gained on average in the years preceding. By September, even the launch of the iPhone 5 which drew a multitude of customers no longer made buying shares sensible.

    In the end, it may just be some freak coincidence that shares of the tech giant responded by retreating back practically to the same price they enjoyed before the accelerated buying began in early 2012. Or we can use such a chart as a guide towards future investment strategies. After all, Apple isn't the only company with such a history.

    Shares of First Solar (NASDAQ:FSLR) hit the market in late 2006 with plenty of reasons to buy. They methodically climbed from their opening day close of just under $30 to $68 within seven months. Then, in June of 2007 shares jumped 24% or over $20 to around $89. They would climb feverishly for another 11 months before crashing hard to $85.28 in November of 2008 or to almost the same spot in which the exaggerated buying began.

    Perhaps no other stock has shown us that the heightened volatility which will always accompany the outperforming stocks and sectors can turn into panic selling more than the trade of Netflix (NASDAQ:NFLX) in 2011. Whereas Apple shareholders may be frustrated at the lack of a new product soon hitting stores, Netflix shareholders were perturbed at management's baffling attempts to separate its DVD and streaming services. So the stock, which had been slowly making gains at $50 per share before surging to $304 in 2011, inevitably tanked back to just over $50 in September of 2012.

    From its IPO high of $35.50 in May of 2009 until late April 2010, shares of OpenTable (NASDAQ:OPEN) had traded in a pretty tight range. Then, in almost exactly one year they soared to a high of $118.66 before falling back below $40 six months later. Most noteworthy is that the fall in shares occurred even as earnings were growing consistently and as the company was beating estimates.

    In the end, what these charts show benefits investors in two ways. First of all, buying shares in the midst of an upward swing isn't as risky as one might think. That is at least if you are willing to implement tight stop loss orders. In the midst of their runs, these stocks had little in the way of actual corrections as buying remained continuous and relatively immune to outside market developments. With most stocks in such a position gaining at least around $100, there is also usually ample time for investors to make a profit.

    Secondly, most stocks in such a state fall back to the same level they traded at before the intense buying began leaving investors typically able to guess a bottom. Even First Solar, although eventually falling below support, initially gained back $120 after retreating below the $100 per share mark.

    Now by no means should investors ever feel encouraged to buy into a stock which is plunging. However, charts show that even if a stock falls by a seemingly large sum, the support for shares may still be surprisingly strong.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 02 2:35 PM | Link | Comment!
  • Negatives Of Tax Increases

    When Congress finally passed legislation sparing most from the calamity of higher taxes, the major indices soared. After all, limiting the bulk of the increases to those making over $400,000 made both political and economic sense. The move would seemingly do an adequate job of raising revenue while also perhaps finally tapping into a national deficit that now stands over $16.4 trillion.

    Factor in a poll showing 67 percent of the top one percent of American earners support higher taxes and the decision to raise rates seems even more appropriate.

    However, to think raising revenues is even a first step in a long process to reduce a crippling national deficit is inaccurate. Instead, raising revenues will only further damage an economy that currently stands on spending alone.

    The signs of excess spending are large in number and, in many cases, too extensive to quickly correct. Take the still shaky banking sector as a prime example. By even July of 2012, approximately half of the bailed out banks had failed to repay the government. Even more disturbing was that almost two-thirds missed dividend or interest payments and a staggering 137 banks had used a government-loan program to repay their debt. Thus, to a large extent, the government was still bailing out these institutions even while being repaid.

    What's worse is that all signs now point to the spending even reaching new heights. Along with the last minute deal to avoid the crippling spending cuts and tax increases came a one year extension on unemployment insurance. It was a move that may delight those struggling to land a job, but one that should anger most citizens paying higher taxes considering the $30 billion the measure costs will only be added to the deficit.

    When House Speaker John Boehner announced during recent budget negotiations that spending was a problem that could not be fixed with tax hikes, his message probably went ignored by many. After all, it seems easier to merely increase revenue via those that have the financial capacity to weather the increased tax burden. However, with a deficit that rises on average $3.86 billion per day, the increased tax revenue can only go so far. Especially when such revenue only fuels more spending.

    Stocks may rise for the time being or until the next budget battle gets underway in a matter of weeks. However, when the budget ceiling takes center stage, investors need to be prepared for the worst case scenario. After all, the economy can only survive in the long term with honest spending cuts and until Washington feels the same way, expect widespread volatility and ominous earnings outlooks.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Jan 07 9:09 AM | Link | Comment!
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