If you’ve traded with me over the last year, you’ve experienced the uncanny ability of the $10 price to change the thinking on Wall Street.
When the market was in full-on bear mode, placing a winning trade was almost as easy as shooting fish in a barrel, as crossing the $10 line was akin to a stock losing its mojo.
That’s when the market was thinking with its head, not daydreaming, like it has for the last two months.
I’m here to tell you that things are about to change – big time.
Lately, we’ve seen the smoke-and-mirrors headlines on Wall Street combined with the “hope trade” for some spectacularly ridiculous results.
We’ve seen breakneck rallies in a lot of areas in the market, but nowhere is it more apparent than the stocks in my $10 universe.
Look at a few of the examples here of heavily-optioned companies that started this year in the sub-stocks.
All of the tickers on the above table usually trade well over 10,000 in open interest, which means the derivatives are going to wag the tail of the dog every once in a while.
Of course, everyone loves a comeback story, but the problem is that the speculation that drives the market higher without fundamentals also makes for some incredibly tough reality checks.
The shares of Affirm Holdings Inc. (AFRM), the buy-now-pay-later platform, illustrate that perfectly this morning.
After trading below $10 for 14 consecutive trading days from late December into early January, shares of AFRM started to rise.
Suddenly, speculation started to drive the ship. From a market cap of $2.88 billion on December 27 – the lowest for the company in five years – Affirm saw its valuation rise to $6.13 billion on February 2.
That all sounds rosy for shareholders, doesn’t it? Well, not so fast. Exactly one year ago today, Affirm boasted a market cap of $21.24 billion. 15 months ago, it was $48 billion.
There is little to no reason that this stock should have been seeing positive attention. However, as I said before, this market isn’t thinking with its head. And so these speculating daydreamers started to send shares higher.
Well, Affirm delivered its reality check on the market yesterday.
Here’s what it looked like on my screen…
I know that the text is a little small, so let me summarize for you: “misses on revenue,” “guides revenue below consensus for Q3,” “guides revenues below consensus for FY2023,” “announces layoffs of 19% of the company.”
$322.4 million dollars lost is what that translated into, and this is after traders drove the price up. And they just told you that the road is going to be rougher over the next year.
So, still trading above the $10 mark (for now), this stock is poised to keep falling, and then, there’s no saying where the bottom might be.
If this stock isn’t on Shah’s “Zombie Stock” list, it needs to be after last night.
The fact of the matter is that there are tons of these stocks that are ready to both drop and pop as the market is set to put these stocks through the winnower this group. Don’t know what a winnower is?
Let’s look at another….
I’ve been talking about Carvana Co (CVNA) a lot for months, it feels like. It’s been having these inexplicable rallies and bumps – despite the fundamentals of the company being laughable.
Since trading up at nearly $55 back in August, it dropped down below $10 on November 4. It spent the next roughly three months below that mark, getting as low as $3.72 on December 27.
Then, on January 30, it jumped up to $10 – for no good reason. It’s since continued to rise over some headlines that are nothing more than fool’s gold.
The Manheim Used Vehicle Value Index showed a 2.5% bump in January. That sounds all fine and well, but it’s still down nearly 13% compared to this time last year.
CVNA is another stock that is just waiting for the bottom to fall out, and once it gets back down to the $10 level, that’s when the real action will start.
This is all activity that’s just fueled by speculation and completely disregarding facts.
Now, you won’t find this ticker trading at $10 anytime soon, but part of the end of all of this speculative nonsense was aided by none other than Alphabet Inc Class A (GOOGL) and their embarrassing little artificial intelligence mishap.
When Google’s AI chatbot, “Bard,” blurted out downright factually incorrect information, a bit of a veil was pulled from investors’ eyes.
They were investing in AI like it was Apple when it released the iPhone 6. The reality is, we are way closer on the timeline for this development to Steve Jobs and Wozniak unveiling the Mac.
These investors are going to have no choice but to admit that they had the carriage way in front of the horse on things like AFRM, CVNA, and others like it.
Look, the market is teeming with stocks dancing around this $10 level, both above and below.
That, combined with the fact that the daydreamers’ time is running short, means we’re looking at some incredible trade opportunities coming down the pike.
In fact, it’s one of the biggest reasons I’m preparing to send out more than 100 trades in the next 12 months based on this “Alpha Line” method.
The confluence of circumstances is just too much to ignore, and the stars appear to be aligning perfectly.
Truthfully, this market couldn’t be more tailor-made for this approach. To make sure you’re with me for the next year, I want to extend this special offer to you – click here to check it out.
