Offbeat Ideas and Commentary from the Depths of Gil's Trading Notes
Something Old, Something(s) New
Snap (SNAP) posted a strong-volume pocket pivot during the week before this past week as it broke out of a seven-week price range. It has since come back in as volume has declined, and is now sitting right at its 20-dema. Volume dried up to -56% below-average on Friday, putting the stock in a "voodoo" entry position at the line, which would also serve as a selling guide. SNAP is expected to report earnings on November 7th, according to Briefing.com, so we've got a little over two weeks to see if we can squeeze a trade out of this, at least back up to last week's highs near 17.
Roku (ROKU) is a recent hot IPO that came public in late September at $14 a share. It immediately launched to a two-day peak of 29.80 before going into "Icarus Mode," falling out of the sky and settling back in towards the low-20 price area. Four days after coming public, it set a low of 20.77 and then bounced from there. That retraced about half of the prior downside move from the 29.80 peak, and the stock is again settling back down towards the lows. This can be viewed in one of two ways.
The first would be as a Wyckoffian Retest where ROKU drifts back down to test a prior low, in this case the 20.77 low, without actually touching or undercutting it. In this case we can watch for a move back up through the 10-dma as confirmation of this type of set-up. The second set-up is an undercut & rally where we see the stock undercut the prior 20.77 low and then rally back above it. That would trigger an undercut & rally (U&R) long set-up at that point, using the 20.77 price point as your selling guide. Two ways to play it, depending on how it resolves from here.
ROKU traded over 1.75 million shares on Friday, and has averaged over 10 million shares a day since coming public, but much of that is exaggerated by the first two days of trading. But it is very liquid for a brand-new IPO, and the story is compelling.
Roku's streaming TV service is a staple in our household, and what I like most about it is that it allows you to stream several services to a TV with a simple device. The number of streaming services is a highly competitive space with the likes of Netflix, Amazon, Hulu, and other content providers vying for pole position. In terms of market share in companies that aggregate streaming services, Roku’s set-top box market share grew from 33% to 37% while Apple TV’s share fell from 19% to 15%. ROKU is expected to report earnings on November 8th, according to a recent company press release.
Switch (SWCH) is another recent hot IPO which has been on the shelf for just a few days. The company operates data centers that it claims provide the technology infrastructure to support the connected world and IoE (internet of everything) secular theme. It also differentiates its data centers with higher power density enabled by its Switch Modularly Optimized Design. “We now live in a world that is being directed and powered by data: billions upon billions of transactions taking place in mission critical seconds,” Chief Executive Rob Roy wrote in the company’s S-1 filing. “Exponentially expanding data is being created in real-time, all the time. At Switch, we know what the value of data is and what its applied analytics require.”
SWCH came public eleven trading days ago at an offering price of $17. It quickly rocketed up to 24.90 and then went into "Icarus Mode" as it quickly plummeted nearly all the way back to its offering price, before setting an initial low of 19. On Thursday of this past week it undercut that low, and then on Friday rallied back above the 19 low, triggering a U&R long entry at that point while using the 19 price point as a tight selling guide.
Assuming it works, we might look for about a 50% retracement of the prior drop from the 24.90 high The mid-point between Friday's 18.50 low and the IPO day's 24.90 high is 21.70, with initial near-term resistance at the 20 price area. SWCH is expected to report earnings on November 13, according to a recent company press release.
