It’s wild out there. I’ve been around long enough to understand that ANYTHING can happen in the market. 

Having said that, the market never ceases to surprise me. The trading in Avis Budget Group (CAR) on Tuesday was incredible. CAR was not a Meme stock. It’s a real company with a large float and long history of trading. However, the 20% short float, current market mania, and obviously some trapped funds were enough for one of the wildest single-day moves I’ve seen. 

Clearly, some funds and traders received margin calls fueling an epic squeeze. From what I’ve heard, many experienced traders took some huge hits trading CAR long and short. 

Losing trades are a part of the game. There is nothing wrong with getting stopped out on a trade. The point is, risk must always be defined, and great traders must stay within their risk limits. One bad day can destroy years of work if a trader gets emotional and refuses to adhere to their pre-defined risk parameters. 

Fortunately, I was able to stay patient, avoid the carnage and make a solid trade in CAR. 

Here is a Breakdown of the Call:

Nov 2, 12:18 PM

Jeff Bishop (Moderator): buying CAR stock off the 1-min crossover. Adding around $324, stop under $305. Could it see $400 again today? Why not?

Nov 2, 12:35 PM

Jeff Bishop (Moderator): alright, let’s go CAR. Time to get crazy

Nov 2, 12:45 PM

Jeff Bishop (Moderator): CAR hitting $368 or $305 for me. That’s a great intraday setup, so setting up the autopilot on it now and I’ll see what happens first

Nov 2, 12:55 PM

Jeff Bishop (Moderator): selling a little car here, shy of $368 but such a fast move I can’t resist

Nov 2, 1:00 PM

Jeff Bishop (Moderator): moved all stops remaining to breakeven on CAR

Now let me explain the reasoning behind the trade:

Fundamentals

Avis Budget Group, Inc., together with its subsidiaries, provides car and truck rentals, car sharing, and ancillary services to businesses and consumers. 

Given Hertz Global Holdings (HTZZ) recent plans to order 100,000 TSLA‘s announced last week, rental car stocks have been in play. HTZZ was up 50% over the last couple of months, and so was CAR. Coming into Tuesday, CAR was making new all-time highs, and given the 20% short float and the price action, it appears a large fund or funds were trapped short. 

Similar to what happened with Gamstop (GME), short-covering + momentum + market mania led to an explosive up move. Add to those professional traders who hit the bid around $300 looking to find the top; CAR spiked to $500 as all these traders who did not cover early got stopped out and were forced to cover!

I stayed away from the front side of the move, long or short. On this occasion, I was waiting for the dust to settle and for my signal to be ready for a long bounce opportunity with pre-defined risk. 

My signal didn’t appear until the $330 area, and let me explain why. 

When a stock pulls back after having an exponential move higher, at some point, it could have a bounce. Now, this could be due to buyers coming in looking to spook shorts, some short covering, or just a dead cat bounce when a stock has gone down too much too fast. 

From my experience, the safest way to play a bounce trade is to wait for a break of the trendline (black line above) and a consolidation. In my trade here, we had both, and my signal was the 1-minute moving average crossover. It just so happens the trade also had a confluence around the 38% Fibonacci retracement off the highs. 

The fact that the stock had stabilized also made my trade much safer than when it was going up exponentially and then taking the elevator down. I am always looking to make sure my risk is controlled on a trade, and in this case, I saw a nice bounce after a lot of others had been wiped out trying to catch a falling knife.

Bottom Line

I’ve been at this game 20 years, long enough to understand that ANYTHING can happen in the market. That is why I focus most of my energy on how much I am risking on any one trade. We saw a very unusual move in CAR on Tuesday, which caught even some very experienced traders off guard. 

I was able to avoid the carnage by waiting for the dust to settle and for my trading setup to form. My trade went according to plan in CAR on a trendline break pullback consolidation on a 1- minute moving average crossover.