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Every Monday at 10 a.m., I have a call with one of Money Map Press' "founding fathers", Bill Patalon. He's also a great stock picker and editor of Private Briefing. We talk about markets and business and some personal stuff, too.
This week I was one minute late dialing the number. Because I was watching these bars unfold on my trading screen:
Beyond Meat Inc. (NASDAQ: BYND) had just gapped up to open and then taken off, eventually jumping an additional 10% in just 5 minutes. By 10 a.m. sharp, the initial $10 pullback had already happened.
Since Bill and I have worked together for many years, we usually exchange some pleasantries and get caught up on the personal side of things before we jump into market or business topics.
When he answered with a nice "Hello," I responded back immediately with a curt nine-word sentence:
"If you own any Beyond Meat, sell it now."
My reasoning was simple: much like nature abhors a vacuum, markets abhor a parabola. They can't be sustained. On a price vs. time chart, parabolas are the visual representation of a mania.
Bill didn't own BYND, though some folks he knows did. And Bill had made a great call, recommending the stock on its IPO day when it was trading in the 60s.
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I also like the meat replacement producers a lot. The science behind BYND is incredible. And it's even more so for BYND's chief competitor, Impossible Foods, whose IPO is expected later this year. And while I think these innovative companies and their stocks could be good long-term investments, when the market hands you an unexpected and very over-sized windfall, it's almost always wise to gladly accept.
Let's look at some other recent market parabolas and what you can do (and a few things you shouldn't do) when these come about.
Two More Parabola "Manias" That Made Us a Nice Bundle
But first, let's brush up our Aristotle a bit.
Aristotle is traditionally credited with the concepts behind the familiar idiom "nature abhors a vacuum". It's just a way of saying that when something is moved out of a space, something else will move in. In other words, there is no true empty space.
Great minds debated this concept through the centuries. Galileo, Blaise Pascal, Thomas Hobbes, Robert Boyle and even calculus co-inventors Sir Isaac Newton and Gottfried Leibniz got in on the act.
Modern science has answered this question with a few equivocations. From a quantum perspective there is no true empty space (it would still be filled with quantum fields) but there are a good deal of mostly empty space and partial vacuums.
The markets, like nature, find a few things abhorrent. Chief among these is the parabola.
A parabola is, at its essence, an exponential function. Galileo in his final work Discourses on Two New Sciences (from 1638) proved that trajectory of a projectile traveling through a nonresisting medium is a parabola. Like a cannon ball dropping back to the ground, trading patterns that look like parabolas inevitably come back to earth as well.
You may remember last fall that another stock with a small number of outstanding shares had an unsustainable run:
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About the Author
Nationally recognized technical trader. Background in engineering, system designs, and risk reduction. 26 years in the markets.
Tags: IPOs