Skillz Stock Has Avid Fans, But Needs Time to Heal

The ARK phenomenon strikes again because today’s article involves one of their picks. It’s hard to avoid them these days because that’s where the interest lies. Investors are gaga over Catherine Woods, so we have to consider her picks. Skillz (NYSE:SKLZ) stock is a violent equity that moves in bunches. This is not for the feint of heart because, case in point, it rallied 74% since last Wednesday.

kid in front of a computer screen playing video games to represent gaming stocks
Source: Shutterstock

Today, we will try to figure out how best to handle something this volatile stock. First, we have to decide on the time frame. This is a young opportunity, so the easy way to do this is through buy-and-hold. The method is as old as dirt and it works for the long-term believers. They set the size of the risk and they leave it alone.

But there are a few things to avoid.

Along the way, investors usually succumb to temptation from the average-down habit. This works when we are investing in a strong set of financials. SKLZ stock still doesn’t have those, so much of the stock price now is a bet on later. The faith is that it will turn into something good in the future.

For now, it is extremely expensive and that’s not an issue for the fans.

Entry Points Matter to Most

Skillz (SKLZ) Stock Chart Showing Tumultuous Action
Source: Charts by TradingView

For the rest of us who prefer to trade around the big swings, there are important nuances to know. There are clear points of entry that are riskier than others. For example, those who bought it on Feb. 5 must have known that they could be late. After all, it had just rallied 230% in less than two months. Odds are they knew they were going to face losses. Conversely, those who panicked last week did so too late.

I realize that in hindsight these are easier statements to make. But they are not impossible to also figure out in real time. On March 25, I decided it was time to catch the falling knife. The stock had just fallen 60% and into a support level. I had one favorable day and then it collapsed another 35% from there. The important bit is that I was not chasing a trend for starters. And I had set an immediate and tight stop, so I did not ride it down. I knew if the stock continued to fall, it had a disaster looming.

Here is today’s main point for short-term traders. If this pop fixes broken trades, it’s best to take the gift and exit. Long term, I have no contention with its potential, but I wouldn’t want to take another ride lower. I would rather miss out on potential upside and book whatever greens I have now.

SKLZ Stock Went Back to Base

Could it have finally found a bottom? Since it almost went back to the September headlines base it better have. If it falls below that then all bets are off. In addition, investors should temper their enthusiasm from the risk of more silly headlines. Meaning they should take partial positions and add to that over time. I didn’t invent this method, it’s ages old and that’s what ARK does.

What contributed to its correction was a bearish report questioning the company’s accounting. On the other side there are others who strongly disagree. Most notably is the ARK Invest team, who backs this company up. They basically think that the fears are smaller than they appeared in the bear report. They have been adding on their positions according to ARK Watcher.

The gaming landscape is changing rapidly. Gone are the days where fans went from version release to another. Now everything is fluid and is now intertwined with esports. Judging by their enthusiastic fans, the team is good at what they do. Over time they should prosper since they operate in a popular arena. They host tournaments globally so they have the attention of the whole world. They can sell popcorn for all I care, they will succeed at making money long term.

If success is all but a guarantee then it comes down to a matter of timing. Currently, the stock is coming out of a correction so it should face resistance. Besides, the whole market is on the upper end of its range. There could be extrinsic risk from that as well, so a bit of patience is healthy.

Regardless of how great SKLZ stock is, it has to trade inside the collective. Meaning it can’t rally alone.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2021/04/sklz-stock-skillz-has-avid-fans-but-needs-time-to-heal/.

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