To successfully play Duolingo stock on market sentiment, take cues from the pros — in golf — by being consistently disciplined and waiting for the right moments to be aggressive. So says momentum trader Mark Ritchie II.
"This is what I would consider a magnitude-type play," Ritchie, an analyst at Minervini Private Access, tells Investor's Business Daily's "Investing with IBD" podcast. "(Duolingo) is a stock I expect could move meaningfully higher over the coming weeks or months."
Shares of the language-learning company recently broke out of a double-bottom pattern with a 162.20 pivot. The pattern, known for how it can shake out weak shareholders, indicates a potential strong rebound and gives investors a chance to get into the stock after it already more than doubled this year.
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Duolingo stock went on a brief run after going public in July 2021, but sold off as the 2022 bear market took hold. After bottoming in December, the company is now up 146% year to date. Duolingo has a Relative Strength Rating of 97 according to IBD's MarketSmith.
The potential for a continued move off Duolingo's double-bottom chart pattern is attracting the attention of successful trend traders like Ritchie.
Fewer Favorites, More Caution
Ritchie says he watches for market sentiment, where asymmetries in information are half the game. But what keeps him in is the potential for gains. "The reward potential is so much larger compared to the risk," says Ritchie.
Taking a wider look at market indicators doesn't mean playing favorites, says Ritchie. "I try not to get hung up on any one indicator, just like I don't want to have a favorite stock because then that's one of the big mistakes," Ritchie said.
"I'm not going to just say throw caution to the wind and start buying everything," he said.
The market can also be misleading. "How many people just missed that whole run post-Covid because the world was ending, we were all going to die?" Ritchie said. "And you know, stocks had this just incredible run for eight months following the final few we had in April."
"In the long term, people are skeptical, pessimistic and negative."
Waiting For The Right Moment On Duolingo Stock
Ritchie said playing market sentiment on names like Duolingo stock is like watching pro golfers like Tiger Woods, who wait for just the right moment rather than constantly taking on big risks. "Conservative, hole after hole after hole after hole," he said.
"Then all of a sudden he would get really aggressive on a shot, once the stars aligned in how he was playing the game," Ritchie continued. "I'd watch some of these portfolio managers jockeying, and all of a sudden, they're just taking big positions."
Duolingo is currently ranked first in the Computer Software Education & Media Group, according to IBD Research, It has a strong Composite Rating of 96.
Ritchie says observers mistakenly assume sentiment trading means constantly taking big positions and risks. "People think that oh they're a good trader or have good results, they're just swinging these wild lines all the time, it's a high-adrenaline deal all the time," said Ritchie. "It couldn't be more opposite."
"Sometimes you just trade in small size to get a feel. In a good year, you then get aggressive."
Ritchie cites the performance of Duolingo stock as an example. "You want to try to be the last weak holder — if you're on the platform at the train station, as it's leaving the station you're grabbing the rail and getting on board."
"And if it stops, you just hop right back off."
