Fitbit Inc. (FIT) and GoPro Inc. (GPRO) both plunged over 4% on Monday and are continuing their ongoing downtrends today to new swing lows.
Written by Corey Rosenbloom (blog.afraidtotrade.com)
Our foundational principle at Afraid to Trade states that “stocks that are weak tend to get weaker” and these two related names show us why we hold this principle and what to expect from “weak stocks getting weaker.” They just get even weaker, and weaker, and make new lows in downtrends. Below is a chart of FitBit to kick off today’s example:
FitBit peaked above $50.00 per share after its June 2016 IPO. That’s when the stock was “strongest” and since then it has been weaker in a persistent downtrend…
You commit an avoidable trading mistake if you try to stand in the way of this selling/liquidation pressure with any buy (or trend reversal) trades.
Here’s a similar example in related wearable stock GoPro Inc.:
While GoPro’s stock had its IPO roughly a year before FitBit, GoPro similarly peaked in the immediate months after its IPO (this time above $90.00 per share) and has been in a persistent liquidation/downtrend ever since then. We’re just seeing the late 2016 to present downtrend in motion with a similar “it’s all over” gap-down in November. Again, we had new price lows continue in the relentless downtrend.
What made it worse for GoPro traders is the failed reversal (false signal) or Bull Trap failed breakout in January. It looked like share prices were on a bullish reversal pathway through the falling moving averages and toward the 200 day SMA (red line). Alas, it wasn’t meant to be and the hopes of buyers were dashed with a crash – a powerful gap-down from $11.00 to $9.50 event in February.
Remember, stocks which are weak tend to get weaker over time, not stronger. Fight the urge to trade trend reversals. It rarely ends well.
