Stock Of The Day – Does Capitulation Mean A Reversal For The Trade Desk?

Shares of The Trade Desk, Inc. TTD are quiet Friday. This follows yesterday's selloff of more than 30%.

But there is a good chance the stock reverses and moves higher. This is why we have made it our Stock of the Day.

The move lower was driven by reduced guidance. Frustrated investors and traders who wanted to sell ‘threw in the towel' and gave up. They sold their shares regardless of the price. They just wanted to get rid of them.

As a result, roughly 55 million shares traded. This is about ten times the normal volume. It may have signaled a capitulation and could have set the stage for a move higher.

The earnings numbers may not be as bad as some investors initially feared.

Operating margin is a metric that measures how efficient a company is. In Q4 2023, The Trade Desk reported a net income margin of 16%. This means that for every dollar of sales, the company earned 16 cents.

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In Q4 24, the margin was 25%. This means The Trade Desk now makes 25 cents on each dollar of sales. This is a huge increase and shows that it is becoming way more efficient.

The increase in earnings was significant as well. For Q4, they were 36 cents versus 19 a year ago.

If it does turn out that yesterday's selling was an overreaction, buyers will enter the market. But they may have a problem. Because the sellers may have capitulated, these buyers could have a hard time finding people to sell them shares.

They may be forced to pay premiums and this could push the stock into an uptrend.

Another reason why The Trade Desk may rally is that it is getting close to a support level. You can see on the chart that since last March, each time the stock reached levels around $67.50 a rally followed.

Stocks rally off of support when the people who created the support start bidding wars with each other. This can result in a snowball effect that could push the price higher.

Numbers that may not be as bad as initially thought and a possible capitulation of the sellers could mean the stock is about to move higher.

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