this week's lesson.
Today I want to talk about several crowded tickers and why meeting criteria is so critical.
Starting with $MLNT, we see a ticker that presents why we don’t trade on the first green day. $MLNT traded around 5 million shares in the pre-market, and after the morning spike, the shorts got squeezed. Most people don’t understand that the price action starts to get held multiple times on a crowded, first green day, leading to a slow grind and then the squeeze.
Getting squeezed repeatedly results in a considerable loss by the end of the day.
I didn’t short $MLNT because most of the consolidation ends around $6. After the market opened, many people bought in that $5-$6 area with tons of resistance and volume trading. So when the stock starts to pull back, there’s a massive amount of support that we can’t navigate and makes for a problematic execution. Now, you can take the long approach with $MLNT because there are several bearish candles after the panic held, which is why I never understand shorting when there’s stuffing action like we see with this ticker; that’s why I traded a huge amount of volume at 1.2 million.
Moving on to $KERN, I see that this ticker didn’t meet the criteria I wanted, and that’s why I didn’t go in. $KERN had a million-dollar market-cap but only had 3 million shares being traded that took the stock from $20-$80 before getting stuffed in the morning. The only option would be to short into the bounce risk at the top after the morning panic, but that doesn’t qualify as a pattern. I had to ask myself if this low liquidity and lack of pattern were something that I wanted to risk, and it wasn’t, which is why I want to take a look at $CTRV next.
$CTRV was a super low float that didn’t come across as one to short either. When you have a morning panic and lose 50% of the entire pre-market gain, typically, the stock doesn’t push anymore and just dies off. That goes for the long approach as well because this pattern leads to a loss of hope for traders that no longer want to buy. Another reason that $CTRV doesn’t work is that people begin to sell once they are already down 20% after the market opens, leading to a push that gets destroyed.