WWM - Analytics

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    Today’s Trading Edge: Fitbit shares plummet after delivering weak guidance

    WWM_FIT_FEB_22_2016.jpg 

    Fitbit Inc. (FIT) shares dropped almost 17% after providing disappointing first quarter guidance. For the current quarter, the maker of wearable health tracking devices, forecasted revenue between $420-440 million, much lower than the analyst consensus of $484 million. Earnings per share was targeted at flat to $0.02 per share, a big miss than from Wall Street’s forecast of $0.24.

    For the fourth quarter, earnings per share came in at $0.35 earnings per share, ten cents higher than the analyst estimate. Revenue also beat with $712 million, the forecast was eyed at $639 million. The company also announced that they will be releasing several new products in the first quarter. They are anticipating additional manufacturing costs.

    Last week shares dropped to a record low after first-time insiders, investors who purchased shares at the initial public offering of $20 a share, were finally allowed to sell shares from a secondary offering.    

    Price action on the FIT 240-minute chart shows the initial after-hours selloff was confirmed with a bearish ABCD pattern. Point D was confirmed targeted with both the 200.0% Fibonacci expansion level of the B to C move and the February resistance level.   If valid, we could see price continue to drop towards the lower boundary of the recent bearish channel. Initial support may come from the $12.25 area.  

    If price does start to stabilize, initial upside may target the $16.00-$16.50 level.      

    The Trade: Sell FIT at $14.50, with a stop loss at $15.50 and a take profit at $12.50.  The Risk/Reward Ratio is 1:2


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