Tesla and Facebook Lay Path for Bears, Snap Cuts Payroll and SAIA Gains a Fan
I don’t know about you but I’m happy to say goodbye to March.
If the sub 20-degree temps on the East Coast weren’t enough, a stock market addled by volatility added to the unsettling atmosphere.
It might be safe to say that the weather will improve (although that’s never a sure thing), I don’t think we’re out of the woods with the volatility. The market broke a nine-quarter winning streak this quarter with a 1.2% decline and investors have become increasingly sensitive to “issues” that might bite their favorite stocks.
Tesla (NSDQ: TSLA), the longtime market darling, saw its stock drop 12% on the news of two accidents involving its autopilot software. That, plus a large recall on its Model S sedans, sent the stock spiraling. What I find most interesting is investors’ heightened focus on Tesla’s exorbitant and dangerous cash burn. This has been well known for quite a long time but in the wake of these news jolts, is “suddenly” relevant.
The same can be said for Facebook (NSDQ: FB). I suggested a bearish play on Facebook a few weeks ago based on weakening usage data and pushback from corporate advertising customers. Only after the news that the company had sold access to customer profiles to a controversial customer did attention shift to these more fundamental problems.
This is important because investors reaction to news events is often more important than the news itself. The recent selling is pretty bearish behavior. It doesn’t mean the market will fall apart but could mean a shift to value stocks and a chance for more bearish bets to succeed.
We had more success with our options trades last week. I’ve been kicking myself for selling the Facebook and Criteo (NSDQ: CRTO) puts too early but knowing how quickly a gain can disappear has trained me to be conservative when booking these trades.
As always, my entry and exit prices are suggestions. In a raucous market, I don’t think chasing a price to buy a put or call is a good idea but each subscriber has his or her own risk profile. As far as the exit timing, many of you do significantly better than my suggested exits, so keep up the good work!
The Criteo July puts that I suggested selling at $4.35 were trading a dollar higher on Thursday based on news that Facebook would limit the data that it shares with third parties. Criteo’s universal match program, which delivers an ad to you on your smartphone, desktop or laptop, relies on some of the anonymous data shared by Facebook.
Recent waterfall declines in over-owned favorites like Tesla create a domino effect in the market. When big holders of a stock like this get whacked, especially if they are buying stocks on margin, they find other stocks to sell to raise capital.
As always I’ll be rooting around for more stocks to add to our portfolio and some bearish options plays with news events to help time the trades.
Around the Portfolio:
The Chemours Company (NYSE: CC) announced a price increase in its Fluoroelastomer products. An increase of up to 10% for its full line of Teflon PTFE and Melts, Viton FKM Fluoroelastomer products, Nafion Membranes and Dispersions, Krytox lubricants, Capstone repellents and surfactants, and Teflon coatings, will be effective April 1 or as contracts allow.
Saia (NSDQ: SAIA) was initiated with a Buy at Buckingham Research and a target of $93. The analyst believes the company has begun a period of accelerated growth driven by the company’s Northeast U.S. terminal expansion plan and a strengthening truck market. SAIA reports earnings in late April.
Snap (NSDQ: SNAP) where we have a put position, announced its second layoff in weeks. Although the 100 positions eliminated equal just 3% of the company’s total workforce, it certainly is not the sign of a growing business.
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