Fastly's Fast Drop Doesn't Make It a Buy

Traders should approach this stock with caution
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I'm getting a lot of questions about cloud computing company Fastly (FSLY). This stock was crushed after the closing bell on Wednesday after the company lowered its revenue guidance. In a few short minutes, Fastly lost about 25% of its value. 

I'm always reticent when it comes to companies that disappoint investors to this degree, because it's usually not a one-quarter phenomenon. When a stock is hit this hard, that's the market's way of saying that the problem likely isn't a temporary one. 


I'm not keen on owning Fastly for the long run, but I might consider it for a trade. If I had to hold my nose and buy Fastly, I'd do it in stages. 

First, I'd take a small initial position at around $90, which is the approximate location of Fastly's 50 day moving average, in blue (point A). I'd start adding to that position near $70 (point B), which is a support level from August. 

My final entry for Fastly would be near the 200 day moving average, in red. That moving average is currently near $52 (point C). 

All three entries combined should equal the trader's normal position size. For example, if your normal position size is around $10,000, you wouldn't invest that amount all at once. Instead, a trader could invest $3000 at point A, $3000 at point B, and $4000 at point C. If the stock breaks below $50 on heavy volume, that's your signal to get out. 

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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here