Action to Take: Raise Your Zynga Trailing Stop to $8.70 Market Price
Dear Fellow Investor,
Travel has sent me on a walkabout in Baltimore.
I waited a little bit to send you this write up for the most obvious reason.
Federal Reserve Chairman Jerome Powell delivered his speech from the virtual Jackson Hole symposium. Naturally, this day was make-or-break for speculators. Would the Fed start its tapering and bomb the market immediately?
Or would it delay its policy decisions?
Knowing the Fed, you really didn’t need to guess. They have kicked the can down the road just a little bit. Powell said that the central bank still has a lot of work to get done. That’s an understatement considering the damage they have created over the last decade.
The Fed’s balance sheet has been a massive source of optimism and speculation over the last few years. It has allowed unprofitable company’s stocks to rally, while good businesses with profits and strong fundamentals lag the market. Basically, the Fed turned the entire market on its side back in 2003 and never looked back.
It’s always fun when the Fed says that there isn’t much inflation in the economy, yet fails to understand how its policies have fueled asset bubbles for 20 years.
Oh well. I guess the best we can do is just play the new game.
And that’s what we’ve been doing.
Zynga Inc. (ZNGA)
This week, we took profits off our Zynga options trade. After locking in near 100% gains of the first leg of the stock, we took the remainder off at a smaller gain in the 60% range. I’m content with this. I know that Zynga has rebounded since its recent pullback. However, I’d prefer to protect gains than risk any breakdown.
The other day, I witnessed selling of calls at the $9 range for October in very large blocks. To me, this felt like a large institution setting a line in the sand on the stock for the next two weeks. So, I was happy to rotate out of this company and move into another options trade that looks like it’s ready to bounce in TrueCar.
Meanwhile, we continue to hold the underlying Zynga stock. With shares trading north of $9, we are fortunate enough now to raise our trailing stop to $8.50. I might look to protect even more of these gains if we can.
Another week, another climb above $11 for this diagnostic stock. It feels like this is ready to break resistance and get back to $14 in the near term. That said, we are happy to hold this stock and enjoy our gains so far. If you’re just buying into the stock, remember this can be a bit volatile. That’s why we’re sitting on a stop down around $9.50.
Let’s continue to enjoy the ride.
TrueCar announced the fourth straight month of slowing vehicle sales. But that was a headline. What people need to understand is that there remains a severe shortage of vehicles. So, the company broke even on earnings, but the stock sank quickly. I think that this was in oversold territory last week, and we’re looking for investors to start picking up pennies.
The stock is up another 2.6% on Friday. This looks like a nice cool burn back toward $5. The $4 call for October is still where we recommended it. And we need to see a move above about $4.25 in the underlying shares before this position starts to run.
The good news is that I have a $5 price target in this stock for late September. Buy the stock, and hold that 7% trailing stop.
P.A.M. Transportation Systems
We’re combining strong price trends with a more illiquid stock. That can drive big moves on price in a short period of time. I still like the flatbed trucking industry heading into the fall. More important, I like the fact that the stock is about to split, the company is going to increase its dividend, and it has plans to buy back more than 200,000 shares for more than the current price. I think this stock is about to surge in September.
Let’s ride that truck into the profit station.
I’ll be back on Monday with a full watchlist.
For now, I need to go watch some horses run in a circle.