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NFTs Have Hit The Stock Market
Non-Fungible Tokens (NFTs) have become trendy over the last couple months with insane art valuations, Elon Musk hype, celebrities jumping on board and even landing a spot on Saturday Night Live. What started in the basements of crypto nerds has now become mainstream and like all trends the market has taken notice.
I’m not going to get into the technicalities of what Non Fungible Tokens (NFT) are in this article. Instead I want to get into how they’ve made their way into the stock market and whether or not that is something we can take advantage of as traders. If you want to learn more about the mechanics of NFT, I suggest coming on the site and watching our Daily Brief NFT member presentation from a couple weeks ago.
An interesting thing happened over the last week because I was already invested in two stocks that both ended up rallying on NFT news. They turned out to be fantastic wins and I got to pretend like I was some sort of future seeing NFT genius because I bought them last November. Of course I had no idea they would rally on NFT news at the time but the important thing to note is that they did fit my fundamental criteria and trade setup. It’s not really a surprise to me that price did what it did, especially considering the broader bullishness of small cap stocks in general. All those stocks needed was a story like NFT to come along and send them to the moon.
Stocks rallying because of a hot trend is nothing new and something that has been observed many times. Sadly these events typically end badly for the average retail trader because the whole thing is basically engineered to suck them into buying at the top of the rally. Unbeknownst to them they walk right into a trap that leaves them holding the bag. As traders we must be conscious of the fact that if we’re reading about a stock in the media then there’s a good chance it’s too late to be a buyer. If your cab driver or hairdresser already knows about it then it’s definitely too late.
TKAT, DLPN, YVR, OCG, HOFV, and IMTE are all stocks that rallied on NFT news starting the 2nd week in March. I’m in DLPN and YVR and got some nice sell orders filled on both of them with DLPN going 8x for me. Hong Kong stock TKAT launched higher on March 17th and launched 1200% over the next 5 days, and that was after already being up an impressive 700% over the previous year. OCG, HOFV and IMTE made similar explosive gains around the same time. Two weeks later all of these stocks have come back down considerably suggesting the rally is on pause for the moment. In time we will know if this rally can catch a second wind or if it was just short term fluff.
As far as I can tell, with the exception of DLPN and HOFV which are partnering up and going into the NFT business, the rest of these stocks rallied only on speculation that they might enter the NFT space. If anything that’s a warning sign that we are in a very frothy part of the market and investors are aggressively bidding up prices on hopium.
So how do we capitalize on the NFT craze? Is it too late?
First of all Don’t Chase!! Brian says it all the time because it always applies. I can’t stress how important it is to not chase uppy markets. That’s what the smart money wants you to do so that you’ll buy the bags that they bought for much cheaper. Don’t do it!
Secondly, you must have a trading plan and trade your personally vetted trade setup. Every trade you take should fit these criteria regardless of NFT hype or any other fundamental reason. When you trade your setup you often find that you are ahead of the news because price action told you when to get interested.
If you can manage the two things above then I think it’s best to ask yourself what kind of longevity the NFT story has and whether or not you want to invest over the longer term. If you do then it’s a perfect time to draw your fibs off the recent rally and look for pullbacks for potential investment opportunities.
My personal take is that NFTs are here to stay for both the long term as well as some wild short term volatility. I have established free positions in DLPN and YVR so I will be letting them ride and finding out where their stories end up. Any names that I’ve already missed the initial pop on I will be looking for potential trend continuation setups.
It’s funny how all of these names I listed popped around the same time on similar news stories. It almost seems coordinated. I’ve seen similar situations where the initial rally sort of tests the waters and now that people see it worked I would expect other companies to jump on the bandwagon. I’m expecting companies to come out with more NFT press releases and if I can find any stocks that fit this criteria that also fit the technical requirements of my setup that I will be willing to take a shot. Gaming, Sports, Entertainment and Ticketing businesses all come to mind.
It feels like we are in some sort of NFT bubble at the moment that coincides with the ongoing crypto and stock market rallies. Expensive digital collectibles sound more like a market top to me than a market bottom so I would say I’m cautiously optimistic. I’m excited about NFTs and I think they have a bright future, I’m just a little worried that prices are currently inflated and seeing companies trying to capitalize on NFT PR stories confirms that.
I will be sharing some more NFT ideas with our community this week so hop on the site and say hello. We offer a 30 day free trial if you’re interested in checking out what we do.
Thanks for reading and happy trading!
***This is most definitely not financial advice and for entertainment purposes only. Hopefully sharing my experience inspires you to begin your own path on this trading journey. Please consult with your professional financial advisor before making any investments in any of the names I have mentioned.