LinkedIn got hit in Friday’s session after their earnings release and lowered guidance, triggering an exit signal for our long position. Despite the fact many believe they are sandbagging guidance during a period of strong growth, that’s not something we can quantify in our own analysis. Price and trend is all that matters here, and regardless of the reasons for the move, there was a clear change in price behavior, going from an all time high Thursday to slicing through the 20 and 50ma in heavy volume the next day. That’s enough for us to take our profit and step aside. We’ll take Monday’s open as our exit. As of Friday’s close we were +41.8% on the position.
LinkedIn ($LNKD) +41.8%. Original 2/5 entry post here.
The ‘hindsight is 20/20’ crowd will undoubtedly say we should have taken profit into earnings, but as we have argued before here, we don’t pretend to be able to predict what may materialize, we are not playing earnings, we are playing trends, and as long as we have predefined risk/reward parameters in place, earnings are nothing but a catalyst to potentially test them. Every day brings the possibility those parameters will be tested, earnings just make it more likely.
It should be noted it was from holding our position into the previous earnings release that we benefited from the gap higher that followed. Further, it’s interesting to note had we have waited until after that previous release, bought at the next day’s open, and sold right at the top on Thursday’s close (a generous theoretical scenario), we would have almost exactly the same return as we do today from holding through both earnings releases.
It’s also credible and reasonable to say that longer-term $LNKD is still in a uptrend here. Although by definition that’s true, for our own analysis the nature of the move has clearly changed, and even if only temporarily, that’s enough for us to move on until the picture becomes clearer and the uptrend reasserts itself after this shakeout.