Today I’m going to talk about some trades I’ve made in the last week. There were some decent tickers last week and I was happy to see them after having such a boring month last month. So, I’m going to go over some of the trades that I did and some of the mistakes I made this week.
Let’s take a look at AETI. There’s some decent resistance ranging from $1.50 to $1.96. As you can see, all the resistance is close to the $2.00 mark. The market cap is relatively low for this ticker, which means you should be careful once the float starts to rotate. Once it rotates, it’s going to be very difficult to short into because the market cap is under 10 million.
Now we’re going to look at the intraday chart (pictured above). When parabolic stocks have solid volume, you shouldn’t size into that parabolic. Instead you should wait until the stock starts to consolidate before you size into it.
So, in this case (above), I assessed the stocks around $1.50 and the high was at $1.60. And I was hoping the stocks would fade all day back to $1.00, but they didn’t. It was difficult to predict what would happen because the movement of the stocks was very choppy all day.
The scenario presented above is special because the stock is really close to $1.00 and NASDAQ stocks usually hold their cycle above $1.00 due to certain requirements. If they don’t meet those requirements, they can get delisted. Since the stock was so close to $1.00 it had to reverse split to keep from falling below $1.00. Once the stock falls to a couple cents then it does a reverse split of $1.50 so it goes above $1.00 again.
Shorting a Parabolic
Now when you are shorting into a parabolic, you should always be careful when the stock is close to $1.00. When the stock is close to $1.00, you’re not going to cover right because there are too many unknown variables. For instance, you don’t know if the market makers or company insiders want to hold above the $1.00 area. In this situation I cover four positions above $1.00, and I would suggest you do the same. Just remember that if you do this, you need to pay attention to the stock in the $1.30-1.70 range.
Now, let’s talk about GENE. This trade was a gap up short and was also close to $1.00. As you can see, the stock was holding just above $1.00 the entire day even though the morning consolidation cracked. Typically, when the morning consolidation cracks it fades all day, especially when the stock is in the $3.00-5.00 range.
So, in this case, the stock was barely holding above $1.00 because we had the Friday morning squeeze. Not many people were expecting this gap down on Monday because people don’t want to cover their shorts overnight. And when there’s no short in the pre-market, people are setting off which causes a massive support around $1.00 which you can see below.
This shows that the stock was still holding at $1.00. When you are shorting into stocks at $1.00, they say the stocks are over 100%. But when you’re shorting around the $1.00 area, you still don’t have a good risk/reward ratio. Which is why I tend to stay away from things like GENE, AETI, CTHR.