In just a few days, I transitioned from being completely unaware of Celsius Holdings (CELH) to lamenting my chance encounter with the fitness beverage company. Celsius Holdings caught my interest last week after breaking out to an all-time high. After CELH pulled back 15.1% off an all-time high, I made a fresh case for buying the stock. The lack of news on the sell-off prevented me from reaching for the falling knife of selling. However, I thought I observed an “all-clear” signal when CELH rebounded slightly with no news to explain the selling: the selling seemed completely random, like an intermittent hiccup in an otherwise extremely strong stock.
Celsius Holdings dropped news of a secondary offering after the close of trading. Briefing.com posted the offering price at $62.50.
The secondary offering for Celsius Holdings hit me with fresh trading lessons. Looking back at the trading action for the latest schooling, I belatedly realized/remembered three things:
- A high-volume pullback from an all-time high tends to flag a danger sign: the previous buying takes on the look of a blow-off top.
- The $72.50 level did not provide a level of “natural” support given no important trading previously occurred at this level. Instead, CELH had nearby natural support first at the bottom of the breakout candle ($66.71), second at the 20-day moving average (DMA) (the dotted line above), and third at the 50DMA (the red line above).
- Mysterious selling should not receive the benefit of the doubt. Absent explanatory news, buyers need to prove themselves by invalidating the selling with a close above the range of selling.
In other words, I should have patiently waited for resolution of the technicals and/or the news before deciding on a next move. Indeed, in hindsight, a short position offered better risk/reward than jumping next to the fallen knife assuming it had no further to fall!
With hindsight, the first day of big selling was a sign that at least one trader got the drop on bad news ahead. Astute and alert traders followed the scent lower. Technicals can work well for good reason. The trading action can say what the publicly available news has yet to reveal. I learned fresh lessons the hard way by getting trapped by CELH’s gap down. Going forward, I will apply the trading strategy for secondary stock offerings. Accordingly, a close above $62.50 generates a fresh buying signal in CELH. I will stop out of my current position on follow-through selling into a confirmed 50DMA breakdown. Confirmation of a breakdown features two lower closes below the 50DMA.
The near-term pricing prospects look poor because the market forced Celsius Holdings to offer a significant discount on the price of shares. Moreover, insiders are dumping 5,518,267 of the 6,518,267 shares in the secondary offering. CELH trades just 1.3M shares on an average day, and the $407M value of this deal represents a whopping 10% of the current market cap. Thus, the size of this deal loudly announces insiders and the company think shares are at best fairly priced here. Accordingly, the market may require a good amount of time to absorb this blow.
Be careful out there!
Full disclosure: long CELH