How I’m Trading as Market Takes a Rest
The key to positioning in individual stocks is to be aware of future news catalysts.
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The market did a nice job of shrugging off the Moody’s downgrade of U.S. debt on Monday, but there isn’t any positive news to keep the rebound going on Tuesday. All indices are in the red, with breadth running 3,400 gainers to 5,600 decliners.
The biggest issue currently is that technical conditions are extended. When that happens, market participants tend to look for excuses to sell rather than buy. The most convenient excuse is concerns that the economy is slowing and that inflation is staying sticky. The cut in China tariffs helped to relieve some of the worries about stagflation, but more progress is needed on tariffs and trade deals to reassure the bulls.
In this environment, I’m primarily focused on managing positions. The most important issue in position management is to be aware of upcoming catalysts. If there isn’t a catalyst, then I’ll be ready for the stock to drift lower, and I may cut some to reduce risk and then rebuy as conditions develop.
If there is an upcoming catalyst, I’ll look to position for that event and will often day trade the position very aggressively while waiting. The most important thing is to watch the price action as it develops and to take advantage of volatility to adjust the position size.
A good example of a stock I’m watching with an upcoming catalyst is Xeris Bioharma XERS.
Xeris had a very solid earnings report and announced on June 3 that it will hold an analyst and investor day in which it will discuss the outlook for Recorlev and a late-stage candidate, XP-8181, for treating hyperthyroidism. This is a very big market and will have a significant impact on Xeris’ future. There should be some financial guidance that could have a significant impact on valuation. Good news is anticipated, and I expect the stock to start running up prior to the event.
There are other names on my list that I believe have very good valuations, but will need some positive news to get them moving. BridgeBio Pharma BBIO, for example, had a great earnings report and appears to have very robust sales, but it isn’t going to matter much until we move closer to the next earnings report. AST SpaceMobile ASTS also has the potential for positive news as it launches more satellites, but it is currently in the hands of some impatient folks.
Risk for the overall market is to the downside, but that can be helpful when trying to position for future catalysts.
At the time of publication, DePorre was long XERS, BBIO and ASTS.
