New Trade for Peloton After Panic Point Triggered by 'Big, Beautiful Bill'

On Monday, I wrote a three-pronged article for the "Small Caps/Stocks Under $10" crowd. 

I increased my target price for the old "Stocks Under $10" Portfolio's all-time greatest position, Palantir Technologies PLTR. I reiterated my target price for SoFi Technologies SOFI, which was another good call made by the old portfolio when it was a standalone subscription product. Lastly, I reiterated my target price for a third name, Peloton Interactive PTON which we got involved with after the "portfolio" days. I remain long all three of these stocks.

I did, however, refer to Peloton as "trickier than the other two" and told readers that our panic point would be a loss of the stock's 50-day SMA. As the fates would have it, all three of these names took a beating on Tuesday, which was a day when all of our mid-major to major U.S. equity indices trades lower and 10 of the 11 S&P sector SPDR ETFs closed in the red. 

The beating for Peloton though, at -11.76%, was far more severe than it was for the broader marketplace or for the other two names mentioned here.

Catalyst?

Remember that Senate version of the "big, beautiful bill" (that we went over in "Market Recon" earlier in the week) that keeps the SALT deduction for those living in high-tax, blue states (and all other states, but it's not a factor for most) at $10,000, instead of increasing it to $40,000, as had been proposed in the House version of that bill? 

Well, apparently, there was another difference that slipped past my initial assessment of the two versions of that bill.

The Senate version of the bill omits the House's proposed provision allowing for the use of Health Savings Accounts (HSAs) for certain fitness allowances. These would include gym memberships, exercise classes and exercise equipment. Not only was Peloton hammered, but so were the other kinds of stocks that would be impacted. Planet Fitness PLNT and Xponential Fitness XPOF also had rough days.

Where We Stand on PTON...

Now, Peloton stock has had a good year. Even with Tuesday's 11.76% drubbing, the stock closed up 32.2% from its April low. We're not losing money on this position, though a nasty chunk of our profits disappeared in one day. On Monday, I showed you an inverted head-and-shoulders pattern which has now blown up. The stock seems to be trading slightly higher on Wednesday morning, which I will try to use to my advantage. 

Readers will likely recall this plan that I laid out on Monday:

Target Price: $9.50 (reiteration)

Pivot: $7.90 (neckline of pattern)

Take Something Off: Loss of the 200-day SMA

Add Back On: At the 50-day SMA

Panic: Loss of 50-day SMA

Well, the stock lost its 50-day SMA on Tuesday, triggering a panic point. I know, I do often say that a level is not broken until a stock loses contact with said level. That's not always true for lower-priced stocks as a few cents can mean a few percentage points. The stock has to take back more than 7% now in order to recapture that 50-day SMA.

​Readers will now see a rising-wedge pattern of bearish reversal that has replaced the more bullish pattern. Relative strength is suddenly weaker and the daily MACD is now overtly bearish looking. 

My plan now is to use any strength or even stabilization on Wednesday (today) to cut this long position in half. If I end up buying those shares back in a few days in a move that costs me a few dollars, so be it. I'll be better for it. That said, the implementation of our risk management skills while we are still sitting on a profit and can fully preserve our invested capital becomes the primary mission.

At the time of publication, Guilfyole was long PLTR, SOFI and PTON equity.