A month ago, we discussed with Pro readers how to trade the sell-off in software . That strategy has worked, and we are exiting positions in the IGV Software ETF on this rally. As of now our targets are being met and it’s time to lighten up. Will we look back and question ourselves and say – we gave it away? The answer is a definitive – heck no. While over the long term it’s quite likely we may have, we had an objective in mind and we’re sticking with the plan. As I look over the individual charts of the stocks within the IGV ETF, there is one in particular that stands out – AppLovin . An investor’s rollercoaster, a trader’s dream Shares of AppLovin literally peaked the day they were added to the S & P 500 . Since that time, the stock has gone on a wild ride. Price spiked to $740, down to $520 and back up to $740 — then as low as $360. This has become a stock only the most active traders could love. The chart Let’s examine price over a one-year time frame. We see a clear double top formation around the $740 area. We also had a rather significant level of support at the $510 area. That level coincided with its initial gap higher in Sept. and held at its Nov. lows. Once price broke this level the pressure was on. Given the wide range, an aggressive downside target using the traditional CMT measured target projections could see shares trade as low as $280. We met half of that objective before getting a well overdue oversold bounce. Again, the moves are wild and now we see price hitting another major pivot. The trade is to fade As this article goes to print, we see a clear ceiling in the stock come into play at this $510 level. That old support level has now become resistance. In fact, shares touched their 200-day moving average almost to the exact cent and reversed. Over the last several days, AppLovin has rallied 42% from their recent lows. Now the risk/reward metrics favor the fade trade. Expect price to struggle to eclipse this level and use this rally as a shorting opportunity. The stock is still guilty until proven innocent, meaning the longer-term trend is broken. We are in a downtrend until proven otherwise and rallies should be considered relief in nature. Look for shares to retreat to the $425 area and possibly hold. If price can break above the $520 area, then cover. The stock is regaining its health. But this relief rally may be tiring for now and the optimal reward seems skewed to the downside. — Jay Woods, CMT with Chase Games DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
