76% Higher With Two Down Days In It

Salesforce (CRM) ran 76% with two down days in it.

Two!!! 

That took the stock from down 42% on the year to up 2%.

SAP (SAP) did close to the same thing. It was down almost 40% four weeks ago, and it is down 6% now, which works out to a 53% run in a month.

I am not here to argue valuation or price on either of them. 

I do not care what they are worth. What I care about is what a move like that tells you, because it tells you plenty.

What you are looking at is a one-sided trade.

How those get built

A one-sided trade is what happens after a market completely destroys something.

Software got decimated earlier this year. Not sold, decimated. Everybody who was going to sell it had sold it, and the people left holding it had stopped caring.

So when the tape turned, there was nobody on the other side of it. Nobody left to sell into the buying, nothing to slow it down. Price went straight up and did not stop to breathe, because there was nothing there to make it stop.

Which is how you get 76% with two down days in it. Fundamentals have nothing to do with it. This is what a market looks like when everybody is standing on the same side of the boat.

And it happens again in the other direction, which is what costs people money.

The marketplace is going to wake up one morning and go, remember that software we hated, and then we loved, and now we hate again. And they will come after it. That move will be violent too, for exactly the same reason.

How I handle it

Two rules on names like this.

I do not trade anything until five days after its earnings report. Whatever is happening in the first few sessions after a print is momentum, not information, and I have no interest in standing in front of it.

And I want to see the standard deviation crack.

That is my term for when a stock moves so far so fast that it breaks outside its own normal range on a chart. SAP did it on the way up this week. When you see that, you are looking at a move that has gotten ahead of itself, and those tend to come back.

I am not shorting Salesforce today. I am getting ready for the flip, and I know that the flip will come just as fast as the run did.