It's fun to be right, but that doesn't mean it's not also frustrating. With that being said, if you happened to get into You On Demand Holdings, Inc. (NASDAQ:YOD) on Tuesday based on my advice, let's go ahead and take your 30% profit - give or take - by selling YOD at the market.
Just for the record, this is NOT what I had planned. I named YOD as a budding bullish idea yesterday based on the way it had gradually wiggled its way out from underneath a nagging, falling resistance line. With news life and growing volume, shares of You On Demand Holdings looked like they were starting a brisk but sustainable march higher.... maybe all the way back to the $5.00-ish area. That would be quite a nice move from below $3.00. As is too often the case though, the market lost its mind, and turned a sustainable trend into something not sustainable by shoving the stock up to levels [and leaving a gap behind in the process] that are practically guaranteed to invite a wave of profit-taking.
Said another way, yesterday You On Demand Holdings was an investment. The circumstances changed today though, and now it's a trade and should be managed as such.
The chart of YOD explains everything. The stock ended up closing above the 100-day moving average line (gray) yesterday, as I figured it would. Sure enough, the bulls came out of the woodwork today, bidding up You On Demand Holdings, Inc. on huge volume. Problem: It's too much.
The prompt for the surge was a major investment in the company, which is for all intents and purposed restarting its effort to once again become the Netflix (NASDAQ:NFLX) of China. With cash in hand, You On Demand Holdings can actually do what it needs to do in order to regrow its business. Fanning those flames were some optimistic comments from a key analytics firm.
To be clear, this isn't a long-term call on the company. It's a short-term call on the stock, which today has gotten more than a little disconnected from the underlying company's value. It happens, but it's usually corrected. The correction here is going to come in the form of a sizeable pullback. Once the pullback runs its course though, YOD will very likely be a good buy. The potential 40% tumble between here and there, though, isn't something worth riding out.
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