Every Monday at 10 a.m., I have a call with one of Money Map Press' "founding fathers," Bill Patalon. We talk about markets and business and some personal stuff, too.
Early last month, during one of our regular phone conversations, I told Bill that if he owned any Beyond Meat Inc. (NASDAQ: BYND) stock, he should sell it immediately.
That’s because I was looking at 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 five minutes. By 10 a.m. sharp that day, the initial $10 pullback had already happened.
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 Beyond Meat stock, 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.
I also like the meat replacement producers a lot. The science behind Beyond Meat is incredible. And it's even more so for Beyond Meat'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.
So 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.
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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.
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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 non-resisting 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:
Tilray Inc. (NASDAQ: TLRY) is a cannabis stock that got some positive news and because of that and the fact that it only has five million shares of stock being traded (called the float), it got pushed to far, too fast in an unsustainable melt up. Like Icarus, it has fallen to earth and is currently trading at around $47 after dropping as low as $34 last month.
Here's an easily remembered chart of Shake Shack Inc. (NYSE: SHAK) not too long after its IPO:
SHAK's price was cut in half in less than two months.
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Parabolic moves can also go the other way, like this trade in gold miners that Stealth Profits Traders ended up making triple digit gains on for one tranche of the options:
Lastly, how has Beyond Meat fared since its parabolic/meteoric rise? Let's just say that Bill's friends are pretty happy now:
In a perfect example of a parabola, it has come crashing back to earth.
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The post How I Just Made 10% In 5 Minutes on the "Beyond Meat" Mania appeared first on 10 Minute Millionaire.
About the Author
D.R. Barton, Jr., Technical Trading Specialist for Money Map Press, is a world-renowned authority on technical trading with 25 years of experience. He spent the first part of his career as a chemical engineer with DuPont. During this time, he researched and developed the trading secrets that led to his first successful research service. Thanks to the wealth he was able to create for himself and his followers, D.R. retired early to pursue his passion for investing and showing fellow investors how to build toward financial freedom.