Facebook, Google, Oracle Show The Risks Of Buying Early; S&P 500, Dow Jones Futures Up | Stock News & Stock Market Analysis

Futures for the S&P 500 index, Dow Jones industrial average and Nasdaq 100 rose slightly Wednesday night after the major averages reversed lower following the Fed rate hike and outlook. Over the past week or so, Facebook (FB), Google-parent Alphabet (GOOGL), Oracle (ORCL), Tencent Holdings (TCEHY) and China Lodging Group (HTHT) sold off sharply after setting up in bases with proper buy points. These are great examples of why investors should wait for a proper breakout and resist the temptation to buy shares early.


S&P 500 index futures rose 0.1% vs. fair value. Dow Jones and Nasdaq 100 futures were up nearly 0.2%.

Oracle, Tencent and China Lodging all sold off recently on earnings reports, always a high risk/high reward situation.

Facebook tumbled on news that a third party had data on 50 million users, with Facebook’s long-term policies and its short-term response coming under fire. Alphabet retreated along with Facebook, as investors worried about the potential fallout on U.S. consumer internet giants from consumers, advertisers and regulators.

Facebook, Alphabet

Facebook and Alphabet had just finished cup-with-handle bases last Friday, when the Cambridge Analytica reports hit that evening and over the weekend. Facebook fell 9% over Monday-Tuesday, crashing through its 50-day and 200-day moving averages before rising slightly Wednesday. Alphabet has retreated 3.5%, moving below its 50-day line.

Oracle Outlook Cloudy

Oracle topped a 53.24 last week, but never closed above that level. Shares were still close when Oracle reported better-than-expected earnings Monday night. But investors focused on weaker-than-expected cloud revenue growth, which slowed from the prior quarter, and guidance for continued deceleration in cloud revenue gains. Oracle plunged 9.4% on Tuesday.

Tencent Growth Isn’t Enough

The Chinese internet giant topped earnings estimates early Thursday, but revenue growth came in a little light. Tencent, which had been 3% off a cup base buy point, sold off 3%. Tencent did hold above its 50-day line and the messaging and gaming titan could soon form a handle, creating a lower buy point. But buying now would simply recreate the same potential risk.

China Lodging Earnings Disappoint

China Lodging was working on a late-stage cup-with-handle base last week. Shares closed March 14 below the 50-day line, which was not a great sign. Then China Lodging came up short with its earnings report, sending the stock tumbling 10% the next session.

When To Buy A Stock: Why Breakouts Matter

Watching a top-rated stock move up in a base, waiting for it to clear a proper buy point can make investors restless. You might think to yourself that you can save a percentage point or two by buying a stock just below a buy point. But that’s literally penny wise, pound foolish. If a stock is going to blast out of a base and run up sharply, the fractional additional gain won’t matter. But if the stock falls back, you’re can be stuck with a loss.

A breakout maximizes your chances of winning, winning now and winning big. With the stock at or near a new high, essentially every investor is happy. No one is desperate to sell. To add shares, mutual funds have to bid up the price.

Conversely, if you buy just below a buy point, that’s when weak holders are deciding whether or not to bow out. Weak holders may have bought the stock at the prior high. After holding on and finally seeing a stock get back to break-even, they may start to sell. That’s a reason why handles will often form in stocks before breaking out, and those modest pullbacks also encourage further selling.

Ideally, selling is modest, and the stock can then power ahead. But sometimes a stock near a breakout and then pull back significantly over the short- or long-term.

Obviously, bad news, whether stock-specific, industrywide and the broader market, can strike at any time. But with a breakout, if the stock performs poorly, there are clear technical signals. If a stock has run up some, you’ll have a cushion so you can weather the sell-off or take profits, usually avoiding a loss.


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Originally posted 2019-09-19 23:11:25.


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