After all the hubbub surrounding the long-awaited initial public offering of Ferrari (RACE - Get Report) , and the hyped-up opening that put in the stock's price peak on the exact day of it coming public, shares haven't done well. After the stock's IPO was priced at $52, it went as low as about $32 in February and is now trading around $44.42. While the good news is that shares have bounced higher from their lows, the bad news is how they got here.
Above is is the daily bar chart of Ferrari, showing the rise off the lows has occurred in only a corrective A-B-C structure. Even if there is one more high, the pattern won't change, nor will the expectation that the $32 zone is doomed for an eventual test, and break, with the low $20s as the forecast. This warning has just been broadcast to to members of our live-market Trading Room, and DSE Alerts services.
The stochastics are trying to bounce off oversold extremes, but they mask the larger trend's message, which the weekly bar chart (not shown) illuminates. That message is that trouble is coming for Ferrari's share price, because the weekly stochastics are now falling away from the overbought extreme.
Therefore, if you have been long and stuck in this name and looking for your window to exit, get out soon, using a a sell stop of $42. If you don't have a position in the stock, use that $42 level to establish a short position. Add to that position if the stock goes below $37, and then again if it goes below $32. Once $32 breaks, keep a protective buy stop at $37, which will insure that you don't lose money on the short play. Then, trail that buy stop down each dollar that Ferrari continues to decline. In other words, if the stock breaks $30, you slide the buy stop to $35. If it breaks $29, make $34 for your buy-stop level. Do this until the stock gets to $28. After that, you'll keep your buy stop 2 points above the stock's level. So if the stock breaks below $27, you'll put your buy stop at $29. This is because $25 +/-$3 is the sweet spot of the downside target and is very late in the corrective declining phase. From the mid-$20s, Ferrari should eventually see at least the high $40s again, but it could take several years.
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