Trading 101: How to Use Fear as Opportunity

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Trader Gregory Rowe works on the floor of the New York Stock Exchange, Monday, Feb. 24, 2020. Stocks are opening sharply lower on Wall Street, pushing the Dow Jones Industrial Average down more than 700 points, as virus cases spread beyond China, threatening to disrupt the global economy. (AP Photo/Richard Drew)

Fear can lead to massive opportunity.

In fact, it’s how some of the most well-known investors made their fortunes. Buffett still advises to “be fearful when others are greedy and greedy when others are fearful.”

Sir John Templeton bought excessive pessimism.

Baron Rothschild once told investors, “The time to buy is when there’s blood in the streets, even if the blood is your own.”

It’s what also lead to respectable returns on Lyft Inc. (LYFT) and Uber (UBER).

On August 23, we said Investors may want to pay close attention to the Lyft stock and Uber.

At the time, LYFT traded at $45.  UBER traded at $39 a share.

For both, fear was out of control after a “California court struck down a measure that exempted these companies from a “state law requiring drivers to be classified as employees eligible for benefits and job protections,” as noted by USA Today.

Two, both became technically oversold on RSI, MACD, and Williams’ %R.  In fact, if you take a look at a two-year chart of LYFT for example, you can see that every time these three indicators aligned deep in oversold territory, the stock bounced.

It happened in March 2020, late October 2020, May 2021, and again just recently.

Spotting the fear, and the technical set-ups lead to opportunity.  Today, shares of LYFT trade at $55.64.  UBER is up to $46.68.