Exited my position in Redfin and Energy Recovery

I had written about Energy Recovery Inc., (NASDAQ: ERII) on my blog on July 25, 2020. I had taken a small position in Energy Recovery on July 24, 2020 at $7.70. Since then the stock has had a nice run and I sold my position today at $8.50 for a 10.3% gain. The technical indicators are still flashing a buy for Energy Recovery. But the stock has had a sharp run-up. The MACD also had a bearish crossover and that was partly the reason for my sell. The Relative Strength Index was at 63 today and I did not wish for it be in the over bought territory before I sold this position. 

Exhibit: Energy Recovery Technical Indicators on August 11, 2020.

 (Source: Tradingview)

I took a position in Redfin on August 10, 2020 at a price of $41.80. I never had full conviction for this trade. I felt Redfin (NASDAQ: RDFN) was too overvalued and there were too many uncertainties in the economy and in the housing market. Given the loss of unemployment benefits for millions of Americans, I wasn't sure how this was going to impact the demand for housing. The Federal Reserve has done an admirable job of lowering the interest rates and stabilizing the financial markets. But even they cannot create jobs or pay unemployment benefits or prevent evictions. So, I felt that the economy is in a very precarious position.  In this current situation, I did not want own a company like Redfin. It may be a speculative bet at these valuations and economic conditions. I sold Redfin at $43.50 for total gain of 4%.   

 

     

     

Is Redfin a buy at $41.80?

Redfin (NASDAQ: RDFN)  - the real estate brokerage company - had a great Q2 2020. Revenue increased by 8% y-o-y to $214 million. The company did book a $4 million operating loss but that was down from $12 million in the same quarter in 2019. The ultra low mortgage rates are benefiting the company. But given the pace of home sales there's very low levels of available homes for sale.The company has provided good guidance for the third quarter. 

Exhibit: Redfin had a down day today, but the stock may not have hit bottom

 

(Source: Tradingview)

There could be support for the stock at around the $41 level.  If the stock drops below the support level at $39, that may be a very bearish sign for the short-term. On the upside there could be resistance for the stock at $43.65. My limit order got triggered today at $41.80 and it ended the day at $41.70. If it passes $43.65 it could go to new all-time highs. Majority of the Wall Street analysts are neutral on the stock with a target of $39.50.

(Disclosure: I own Redfin)