When a stock rises rapidly, it can often attract seller’s attention. The logic behind this is:
· Investors often see the rapid price move as a sign that the stock is overvalued and may decide to sell to lock in significant gains before the stock falls.
· The rapid appreciation in price can also hit price targets previously set by investors and analysts or existing sell orders set by traders in the event of rapid price appreciation.
· Higher valuations and the expectation of a short term pullback may suck in potential short sellers (traders betting on potential price depreciation).
Manchester United
MANU
is a UK-based operator of commercial services and broadcasting for Manchester United Football Club, one of the most iconic soccer franchises in the world. The club competes in the Premier League, the highest division in the English football league system. Manchester United is to soccer what the New York Yankees are to baseball or the Los Angeles Lakers are to basketball.
A few weeks ago, reports emerged that the iconic football club was seeking to sell itself after years of frustrating performance on the field. Though the stock’s performance has been lackluster recently, investors cheered the news. Manchester United’s stock rose 61% for the week of November 25
th
in reaction to the report.
Image Source: Zacks Investment Research
Pictured: MANU launched higher by 60% in under a week and has moved sideways since. The stock is on the brink of breaking out to new highs even in a weak market.
What has happened since then is even more interesting. Over the past few weeks, the stock merely retraced 10% of the move before beginning to rise again. The stock’s abnormal strength and seller’s unwillingness to ring the register suggests that the stock’s move may not be done yet.
Historical Precedent
Finding historical comparisons to this type of strength are few and far between, although they do exist. In 2013,
Tesla
TSLA
ran up in a similar fashion by more than 50% in just a few weeks before surrendering little of its gains.
Axon Enterprises
AXON
,
formerly known as Taser (TASR), flew higher by more than 100% before moving sideways over the next few weeks. It is important for investors to realize that these gigantic moves were not the end of the stock’s appreciation but rather the beginning. Both stocks went on to have multi-bag moves over the next few years.
While it is difficult to predict the future, MANU’s stock has some ingredients of past winners, including:
· A strong Zack’s Ranking of 2.
· The potential catalyst of being purchased.
· A strong price run up over a short period of time with little selling.
· Relative strength in a weak market. While the major indices are struggling, MANU is attempting to break out.
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