Investor Spotlight

Trade Plan For $XLNX

Passion:

"If our work does not feel like play, then we should ask our selves whether we are in the right job"

By Desmond Morris (zoologist)

Trading and investing in Growth Stocks is my passion. Every Saturday and Sunday I look forward to getting my financial papers delivered at the front door. I start out early before 6.00 am and pore over the data voraciously while I am having my breakfast and sipping my coffee. It's the most fun time I have on weekend mornings, reading and scanning the financial papers and making all kinds of notes. Markets are closed and there is nothing to distract my attention.

In my post last Sunday April 14th, I presented a synopsis of how the break away gap on $XLNX during its earnings on January 23rd was traded for +27% profit within 8 weeks by Friday April 12th. I had posed a question at the end of the post:

What should one do with $XLNX when the market opens on Monday morning April 15th?

There are several possible strategies to use when trading stocks such as $XLNX. I shall highlight a few below, observing some of the IBD (Investors Business Daily) rules:

Close out the entire position. According to IBD methodology, one should start harvesting profits once the stock attains a gain of +20% to +25% from its proper buy point. The stock was already +27% before Monday morning.
Close out 1/2 the position. $XLNX had attained a profit of +20% within 3 weeks from its buy point of $95.28. This prompted an "8 Week Hold Rule". Stocks that surge this fast and furious should be held for 8 weeks because they tend to get higher within that time. Friday April 12th was the end of the 8 week period. Stock had already attained a gain of +41.07% from its proper buy point of $95.28. Stock is pretty extended now and there is the risk of stock retracing. Keeping 1/2 a position allows the stock some breathing room to retrace and allow it the possibility to make the higher run after that.
Add another small position and scale up. Stock has been trading tightly for 3 weeks from Mar 21st to Apr 10th. Its been consolidating around $130 in a very orderly fashion with low volume of trading. It broke out on Wednesday April 10th in volume that was +25% higher than normal average daily volume. This was the institutions grabbing more shares. On Thursday April 11th, second position could have been initiated at market open for $131.41. Currently this position is +2.69% already. $AVGO and $IPHI are also in the same group of chip stocks and they are acting in a similar manner as well. When institutions buy a stock, they tend to buy other leading stocks in the same group.
Hold out for earnings. $XLNX reports earnings on Wednesday April 24th. Stock has surged +10% to +20% within days after reporting earnings the last 3 times. Trading volume has been 4 to 6 times the daily average trading volume during the last 3 earnings report. Institutions have been accumulating these shares when they were trading at $68 in July of 2018. Some of those institutions have made over +90% since July 2018. There is no guarantee that the stock would surge this time around though. Technically there is no overhead resistance. It has surpassed the highs of $96 that it had attained during the dot com bubble. 50 day sma(simple moving average) is holding tightly close to the 20 day sma. The stock is acting well right now.
Harvest 1/2 position and let the other half ride out the earnings report. It's always risky to hold stocks during earnings. It's prudent to minimize risk during earnings. Locking in profits for the 1/2 position avoids being exposed to earnings in case the stock plummets.

Please feel free to comment on the 5 scenarios that I have presented in this post. I would like to encourage you to think of some other strategies that could be employed to attain a higher profit on this leading growth stock in the leading chip sector. You can also address your questions and suggestions to me directly for detailed explanation on any one of these scenarios that I have highlighted above.