If you’ve followed me for some time, you’ll l know I’m always on the hunt for good reversal trades.
Picking bottoms is no easy task, but the truth of the matter is, a well-timed reversal entry may end up on the list of your most lucrative trades – true bottoms provide very limited risk and huge and quick upside.
But then there’s the flipside of the coin: you have to be very careful through the trade, as you never know if the stock has really quit going down.
I would personally never enter a beaten-down name unless I see it find support and give me some kind of confirmation that it’s ready to finally uptick.
Well, I’m glad to report I just found one such ticker!
What makes it even more exciting: it’s a well-known name, in an ever-hot industry with plenty of short interest – all that good stuff that we, momentum traders, appreciate!
Let me introduce…
I’m sure many of you have recognized the ticker by now, but for those who haven’t, let me cover some basics about the company first.
BeyondMeat is the producer of plant-based meat substitutes.
That’s right: if you love eating meat… without actually eating meat, BYND has your back!
The company is one of the market leaders in plant-based meat substitutes and offers a wide range of product lines with the most famous ones being Beyond Burger, Beyond Sausage, and Beyond Meatballs.
BeyondMeat also collaborates with many of our favorite fast-food chains, such as McDonald’s, Dunkin’ Donuts, Taco Bell, and KFC, to name a few.
In a world with an ever-increasing focus on healthier, oftentimes vegan food options, all of the above makeup for quite a resume for a public company!
Needless to say, investors have been paying attention – during its 2019 Initial Public Offering, the stock pulled off one of the most impressive post-IPO performances ever, as it went from $45 to nearly $240 in a matter of 3 short months:
The fun has barely slowed down since, as BYND maintains the volatility and is a regular on the screens of many traders.
What’s The Story
Ok, I get it, the company is cool and its IPO was great, but why do I care?
Well, there are a few reasons.
First, unlike many super hot IPOs (cannabis stocks quickly come to mind) that popped to highs and sold off into oblivion, BYND has kinda maintained the range:
The entire time, it’s traded far above the IPO price and has a history of violent moves higher.
Second, the industry is as hot as ever, and the company continues to roll out new product offerings, as well as partnerships with Tier 1 brands.
Third, and this one matter a lot, the chart! Let’s zoom in on the image from above:
The stock is down over 50% since the beginning of the year, and it’s been a pretty straightforward downtrend – that surely qualifies as “beaten down.”
But what get’s me really interested is where it’s trading right now – as you can see above, it’s fallen right into a big support area at $100.
It’s been holding up so far and is trying to grind higher today, following a news catalyst.
Oh, and did I mention everyone’s favorite – 26% short interest?
What To Expect & What to Watch
So, how do we trade it?
As I mentioned, with reversals I don’t like to guess – before I make any decision, I want to see support and confirmation.
I believe the stock is slowly but steadily giving us both.
I’ve already explained the support above, that one is pretty obvious. Now, let’s zoom in even closer to look for confirmation:
I like the fact that BYND has so far had multiple breakdown attempts, and failed at them each time – that’s a good sign, as it signals good demand at support.
At this point, I need to see it build up at higher levels & to break the downtrend – if that happens, I think we can have a major move, as momentum traders will jump on, while some short traders will get squeezed out.
BYND is trying to do just that this morning following CNBC news that McDonald’s will start testing McPlant Burger created with Beyond Meat in eight restaurants next month.
I’m not convinced just yet, but I will be watching the $105 level very closely, ideally, I want the stock to never drop below again.
My line in the sand remains below $100, and my target for a potential bounce is $140.
Let’s see how this plays out over the next few weeks.