Add Affirm to wishlist, not cart
I’ve been a fan of fintech stocks for a long time. Until recently, the choices were few and practically limited to Visa (NYSE:V), MasterCard (NYSE:MY) Where American Express (NYSE:AXP). In recent years, two worthy competitors have entered the arena: Pay Pal (NASDAQ:PYPL) and Square (NYSE:SQ). More recently, more and more companies like To affirm (NASDAQ:AFRM) and Sofi (NASDAQ:SOFI) have taken root on Wall Street. Today we are focusing our attention on AFRM stock as it has been making some serious waves lately.
Source: Piotr Swat / Shutterstock.com
I was optimistic about this company from the first time I saw it. But today I’m going to sound a bit more careful. It’s not because I changed my mind about his business prospects. The company still has a long way to go. But I’m constantly looking to find smart entries in stocks.
My goal is not to find the perfect price point but rather to avoid obvious mistakes. Running after a 70% rally in a few days is not something I usually do. This is where I add it to my shopping list to buy AFRM stocks on dips.
Too much love for AFRM stock
Source: Charts by TradingView
The rally took place in two giant gusts, one of the Amazon (NASDAQ:AMZN) partnership title. But the other was his own reaction to profits. Each of them left a giant gap below. While not all of the gaps are filled, having two of this size makes me uncomfortable about the stability of the graph below.
Add to this that the markets in general are at all-time highs, that leaves me with a lot of hesitation.
Stock market fundamentals are strong even though it hasn’t had such a long history on Wall Street. The company has been around for some time but was not public until recently. Financial measures make sense, but they are still too new to be used with emphatic conviction. If the stock market is higher in the future, the AFRM stock will also be higher.
Looking left on the stock chart, however, I have some concerns. It is now trading near the highest levels since the first month of operation. There may be investors who were waiting for his return to be able to get out of it. They call it a Wall Street aerial supply. If the stock hits a new high, momentum traders can chase it.
Look for new methods
If you twist my arm to trade it today, I would use options. There, I can sell puts instead of buying stocks in the gaps and leave room for error. It would be a bullish position from today but doesn’t need a rally to win. In fact, the stock may drop 20% and I would still have the opportunity to profit from it.
In the worst case, I end up buying stocks at a much lower price. Initiating a strategy like this doesn’t even require any personal expense. I get the bounty back so I can get by with the sock, maybe. If nothing happens, the bounty dies in my favor.
Next week we have a Federal Reserve event where they may give news of the decline. I don’t expect them to actually start cutting back on their purchases. But they might be hinting at the date of the meeting when they do. Confused? To use their style of words: They will “talk about talk” about the reduction towards the end of the year.
My gut tells me they won’t do anything until Christmas. The wounds from their 2018 efforts are still too fresh. Fed Chairman Jerome Powell could also be in the running for a reappointment. The last thing he wants to do is ruffle the feathers and create a crash on Wall Street before it happens.
I expect to hit new all-time highs ahead of a 10% correction in equities this year.
At the date of publication, Nicolas Chahine had (directly or indirectly) no position on the securities mentioned in this article. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.
Nicolas Chahine is the Managing Director of SellSpreads.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.