ZNGA Update

This is a perfect example of a long position that isn't quite a Cat & Dog trade, but is a "Sale" stock compared to AMZN, GOOG, AAPL or any of the other names dumb money would be interested in, they feel like more shares = more gains, this of course is not true. One share of GOOG can gain just as much as 200 shares of ZNGA, but this is what we see when dumb money enters the market and this could be seen clearly lat night in the Worden T2 indicators, "Percentage of stocks above 40 day moving average" or the 1 or 2 standard deviation above the same average, the momentum stocks. Dumb money is always pulled toward that age old human tradition of looking for a sale or bargain, which doesn't mean ZNGA is one, it means the share price is cheap and as already addressed, the misconceptions about the number of shares one owns.

That being said, we had a beautiful trade in ZNGA as I believe it is in a longer term base and starting to pull out of it, we took a lot off the table because of the pullback expected, but held some to see if we can get some more upside from the stock. I still think ZNGA can pop more, but market pressures are always going to have the greatest gravitational force on any particular stock on any particular day, just look at the number of losers in the Dow yesterday, my scan pulled up 27 of 30 losers. If the biggest stocks like the Dow components can't avoid the gravitational pull of the market, which ones can? I'm going to bold this section because it is a concept that you should know, why?

People go about looking for trades the wrong way, they start with the stock and the market is just a curiosity. You START with market analysis, then figure out which sectors are best aligned with the market view and then look for trades in those sectors.


The most powerful force on any given stock is first the market, second the Industry group and lastly, the stock itself. There are of course caveats to any rule, but that's the rule of thumb.

Back to ZNGA...

ZNGA has a nice gain with ZERO leverage, the position is smaller than a speculative size so this position at this size is no serious risk, therefore I'm inclined to give it some more room. Would I add here? I would not at this point, but I'd hope to at some point when it is in a better place.

 Here's the base for ZNGA, the yellow arrow is stop hunting move which allows Wall St. to accumulate the stopped out shares. The recent surge in volume looks a lot like a stock getting ready to move to a stage 2 "Mark up" trend.

 The Trend Channel is still holding the trade, there has been no stop out since the year started, the current stop is just below $3.00, you never want a stop at a whole number like this and I prefer to keep the stop mental and ALWAYS on the close.

 The 3 min chart shows the accumulation at the pullback as we were hoping for, yesterday put a halt to momentum as you'd expect.

 The 10 min chart is also positive

 As is the 15 min chart. At this point I think there's enough accumulation in the stock that they have to move it higher.

With a long term 4 hour chart, the base and positive divergence is clear, this area looks as I thought initially, a consolidation.

I personally would not want a lot of exposure to this position because it needs a wide stop here, but for a reasonably sized position with decent risk management and especially if you have some room with a gain, I personally would like to try to hold it for a while longer.