19.06 -23.06

This week I did not follow the markets very closely. However there are some setups to review.

Monday – 19.06.2017

On Monday, MOSY once more squeezed in a typical way. It sold off in the morning, then reclaimed, put in higher lows and baammmm –  two huge candles from $2 to $2.2.

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Tuesday – 20.06.2017 

On Tuesday EKSO played the bounceplay. As one can see on the daily chart the stock had sold off for two days after increasing strongly at the end of the previous week. When the market opened, EKSO gapped up, before selling off and finding support. Then, it quickly squeezed in two consecutive candles. Admittedly, this was fast action and the pattern did not offer the perfect entry opportunity.

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Wednesday – 21.06.2017

On Wednesday another stock bounced, but intraday the pattern differed completely to the price action encountered so often in the past weeks. ZN had experienced a huge move on Monday, gave back most of the profits on Tuesday and came back on Wednesday. And wow – did it come back !

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Thursday – 22.06.2017

Thursday was the day a stop loss of mine got hit. NBGGY had experienced weak price action ever since me investing in it. On Thursday finally the shares crashed rather strongly and I exited at 36.8 cents.

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Friday – 23.06.2017

On Friday there was one final incredibly squeeze. MARA rebounded after a down day on Thursday, spiking from 24 cents to 48 cents – 100%!

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Last week I wrote about the attractive chart setup that CBAY was offering with a possible breakout at $5. As it turns out, after some struggle the upwards trend continued and CBAY closed Friday at $5.56 for a nice gain. I was indecisive however and missed my entry.

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Additionally, Southwest Airlines finally broke out of its resistance at $61 and continues its upwards trend.

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Let´s see which opportunities next week will bring along.

Best,

Nils

 

 

 

 

 

Review of the Week

This week once more brought along many opportunities and the bounce play pattern appeared almost every day. This unfortunately does not mean yet that I was able to take advantage of it appropriately.

Let´s have a look at what happened.

Monday – 12.06.2017

Monday was a day when my inability to control my emotions cost me dearly. The nr. 1 ticker I was watching was ABIL, belonging to the technology company Ability Inc. This is a company with a market capitalization of mere $22 million and a very low share float of 7.41 million shares available to be traded. These low market cap/low float plays are more likely to squeeze. That is because with a limited float i.e. supply of shares supply-demand dynamics quickly heat when people chase a stock or shorts rush in to cover.

After two huge days last week during which in went from $0.6 up to $1.7, ABIL crashed on Friday and therefore seemed to be the perfect bounce play on Monday.

Before the market opened ABIL was trading above its closing price. However with the opening bell, the shares sold off strong. The pattern that I have come to love so much materialized. ABIL shortly sold off and then grinded its way up – the pattern was PERFECT! I typed in my order to buy at $1.15 and was just about to execute when I started to think about my exact risk and whether it really was a good decision. A few seconds passed and this was when ABIL made its move. In just three minutes it went from $1.16 to as high as $1.42 and the opportunity had passed.

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Tuesday – 13.06.2017

On Tuesday another long expected pattern finally materialized. Drone Guarder Inc. (DRNG), a company focusing on drone backed security systems, had been the most recent pump. Through email spam and other advertisements, promoters had pumped this from less than 50 cents to more than $1.2. On Tuesday DRNG finally crashed – and boy how did it crash. It went from around $1.2 down to 42 cents.

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Even though it did crash, I decided to play the dip buying pattern since, as I have elaborated on before, these stocks often offer incredible dip buying opportunities the first time they crash.

When the market opened, DRNG quickly sold off down to 85 cents. Then, level 2 displayed a big amount of buyers and after the first green candle I jumped in at 88 cents with a very small position size. Just after my entry DRNG surged and soon hit $1. At this point, I thought about taking profits but when more buyers rushed in I wanted to be more patient and did not sell at $1. The bounce turned out to be a fake bounce however and DRNG topped above this $1 level. It was incredible how the action on level 2 suddenly turned around. At this point I tried to exit my position. However it can be very difficult to get filled on an OTC stock even if one hits the offer and I consistently had to adjust my limit order. I finally got filled at 92 cents and was happy to be out of the stock. DRNG continued its downward trend trend for a long time and found its low at 42 cents. From this level however  it bounced to 70 cents. This incredible bounce in percentage terms represents the possibilities that buying these stocks on a dip may offer. As my trade displays though, there is much risk as well in „catching a falling knife“.

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After the DRNG trade I went on to have a look at another stock on my watch list and was literally 10 seconds too late.

CAMT, belonging to Camtek Ltd., a technology company active in the semiconductor industry, was one bounce play of the day. After four days of crashing it had become seriously oversold and bounced as anticipated.

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Once more, the pattern worked out perfectly. With the opening bell, CAMT sold off for a short time. Then, it found support, put in higher lows and when it showed up on my screen  it just broke out of the $5.35 range and squeezed up to $5.65.

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Even though the squeeze worked, one can see that these higher priced stocks at around $5 tend to offer less percentage gains than very low priced stocks in the $1s. This is something that could be observed on Wednesday too as we will see now.

Wednesday – 14.06.2017

Wednesday offered again two bounce plays one of which I played and one of which I missed.

My main watch for the day was GTXI. GTx Inc. is a Biotechnology company and had spiked big times on positive drug test news before selling off for one day. Given the chart, a possible bounce seemed to be likely.

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And in fact, the pattern seemed to work out again. GTXI sold off shortly and then set in higher highs. I followed my plan and bought at $4.76. Then however, the pattern did not follow its usual trajectory and GTXI sold off to $4.65. I thought the chart would be broken and exited. Here the mistake that I made can be seen. Given a share that trades at almost $5 Dollars, a 10 cents red candle does not have to be a red flag. Furthermore, on the chart GTXI had not broken through any major support. I should have had a clear idea of my risk and should have had a wider stop given the share price. After my exit, GTXI grinded its way back up and suddenly the pattern seemed intact again. I decided to take the signal and bought at $4.784. Just after my entry, GTXI spiked and I sold at $.494.

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Just as with CAMT one can see that GTXI did offer the bounce but not the strong percentage gains as ABIL for example had done.

The stock that did offer these gains on Wednesday was DCTH, which at 6 cents literally is a penny stock. After its crazy move last week and the subsequent sell-off  this already had been on my radar on Tuesday for a possible bounce. As it turns out, it bounced on Wednesday. Due to the high intraday volatility and the low price of the stock I had decided to focus on GTXI – the wrong decision as it turns out.

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DCTH offered the bounce play as well, ableit in a less clean way than preferred. In the beginning, this sold off but then subsquently bounced from a low of around 4.5 cents to a high of 6.25 cents.

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One last trade that I entered on Wednesday was buying National Bank of Greece S.A. (NBGGY). The shares trade over the counter and I bought this OTC stock for a mutli-day swing trade after NBGGY had broken out of the 40 cents resistance on Tuesday. I entered at 41.1 cents with a small position size.

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Thursday – 15.06.2017

Thursday was a rather slow day. Two things are noteworthy however.

As every other day in the past two weeks I was watching out for a possible bounce play. On the top of my radar was once more MOSY. This already had given back ground on Wednesday after squeezing on Tuesday. As we see, a strong move did happen on Thursday too.

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However, the move happened towards the end of the session when I was not watching MOSY anymore and thus I did not participate in this move. MOSY demonstrates however once more of how much value it can be to find stocks that may squeeze.

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Secondly, I have to announce that I exited my OLLI position on Thursday. As many other growth stocks OLLI has been adversely affected by the recent sell-off of NASDAQ and growth stocks. While I still like the company´s fundamentals, the price action is very bearish and my stop got hit. Thus I am out for a loss.

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Friday – 16.06.2017

Even though I closely watched the market, I did not encounter any pattern that suited my strategies and therefore I ended up not trading on Friday. I was watching CBAY getting close to its breakout level at $5.

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CBAY´s daily chart setup looks very attractive and I may enter next week for a swing trade.

Since I will be working for the next three months, I will most likely not be able to day trade. Instead, I am going to concentrate on swing trades in the near future to come. I will however, anyway keep on posting weekly reviews and see if the bounce play pattern continues to rock as it did in the past two weeks.

Best,

Nils

Southwest Airlines – does it fly high?

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Southwest Airlines (LUV) is a company that I want to have a short analysis on this week for a possible longer term trade.

Southwest Airlines is a passenger airline that services domestic clients in the United States and closeby international markets. Among its clients it has gained popularity due to its focus on being an airline for the „everyday person“. It concentrates on low cost flights but at the same time the company´s main concern is „treating customers fairly“. This is presented by the fact that Southwest Airlines opposed to its competitors does not charge for things such as changes of flights, telephone reservations, a second hand baggage, snacks or seat selection. This allows the company to differentiate itself from the ultra-low cost competition. The strategy results in Southwest regularly being at the top of US domestic customer satisfaction rankings with the lowest complaint ratio within the market.

In order to keep operation expenses low the company relies on various strategies. A single aircraft type, the Boeing 737 is operated. This brings along efficiency advantages since all employees are used to work in the same type of aircraft and consequently crew members or airplanes may be substituted if needed. Additionally, Southwest connects secondary or downtown airports which are generally less congested. This reduces both airport fees and the time that planes are required to remain on the ground significantly, thereby increasing productivity and saving costs.

After previous strong years, Southwest Airlines experienced another year of record earnings in 2016.

From 2012 until 2016 operating revenues and net income grew strongly. Even more importantly, the diluted earnings per share experienced stellar growth from $0.56 in 2012 up to $3.55 in 2016. However, even though consistent year on year growth has may be observed, one most not overlook the fact that growth has been declining in the most recent past. More importantly, despite the fact that there has been consistent growth in yearly earnings per shares, unfortunately the same does not hold for quarterly earnings year on year. In Q1 of 2017 earnings per share decreased to $0.57 from $0.8 one year earlier.

 

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Similarly, Southwest Airlines lags behind some of its competition in terms of profitability measures such as return on equity and return on capital employed. Return on equity decreased by 7% in 2016 down to 26.57%. The comparable low cost carrier Ryanair for example shows a ROE of 40.35%.

Noteworthy though is Southwest Airlines strong balance sheet. Its long-term debt to capital ratio is very low, showing a value of 25.87. The debt to equity ratio yields the same at a reading of 0.37. However, quick and current ratios at 0.56 and 0.62 respectively may indicated some short term liquidity constraints.

The positive uptrend has been experienced not only by the company´s financials but also in more industry specific indicators. As can be seen Southwest has been able to consistently increase the yearly amount of seats flown between 2012 and 2016. Similarly, seats per trip have experienced a slow but steady increase indicating that airplanes are operated more efficiently.

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Southwest´s strong past performance has come through in its share price too. Below we can see how stellar LUV´s performance was between 2012 and 2016. Shares increased 5 fold, strongly outperforming the S&P 500 and more importantly its competitors.

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More recently in 2017 LUV has been on an upwards trend too. The past months however have brought along much consolidation and more recently a small sell-off of LUV shares. LUV remains on an uptrend however and I will keep on watching and see if it can break out of the most recent $61 high.

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There are various risks that Southwest Airlines is facing. Among these the most apparent appear to be:

  • Sensitivity to economic conditions. The airline industry is strongly correlated to the general economy. A cool-down or even a recession could strongly impact Southwest´s operating results.
  • Increased low cost competition. One of Southwest´s differentiation characteristics is its very cheap fares. However, in recent years low cost carriers have experienced much competition and the business model relying on this low cost strategy may be risky given this environment.
  • Volatility of fuel prices. The airline industry´s operating results are strongly dependent on fuel prices. The last years of weak oil price performance have definitely been one reason why airlines were able to earn this much. Conversely, sharp price increases may result in a erosion of profit margins. Southwest aims to mitigate this by an increased use of financial derivatives. In 2017 up to 63% of fuel consumption will be covered by such hedging activities. While derivative contracts allow to hedge against price increases, the benefit of price decreases may in some cases be lost. This could lead to a relative underperformance versus competing airlines and should be considered.

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This short snapshot of Southwest Airlines serves to introduce the company, its general performance and outlook. I will keep the LUV on my watchlist in the near future and see if it will be able to fly high again.

Until then!

Best,

Nils

Review of the Week – Frustration and Encouragement

This week has proven once more one thing that I have written about a while ago – Execution is key! When day trading it is not enough to „predict“ a possible direction on the daily chart. A big green candle on the daily chart may look great but if the price action during the day is very volatile, one may not be able to optimally implement a trading strategy to take advantage of these moves.

Similarly, I „foresaw“ many moves this week but finally I up ended trading them differently or not trading them at all.

07.06.2017

In „LINU squeezes“ I wrote about how I missed the „predicted“ bounce plays of both LINU and SPI on Tuesday. Additionally, I mentioned that a bounce of CLSN may be due on Wednesday.

For the „bounce play“ pattern I prefer a rather quite open of the stock. CLSN did not offer this price action. For the first 10 minutes of the session, CLSN experienced a short morning panic, crashing from $2.85 down to $2.5. There the price action reversed however. After the first green one-minute candle, I many buyers showed up on level 2 and I decided to buy this dip. When I entered my order, CLSN traded at around $2.57. As it turns out I got filled at $2.65. What had happened? Given the level 2 and the liquidity of the stock at that time, I had entered a market order instead of a limit order. This was a huge mistake and put me right in the beginning under pressure since I had bought at the top.

Lesson to be learned: Put in limit orders!

However, after some consolidation in the $2.65 area, CLSN broke out of its range and shot up to $2.75. There, sellers rushed in and I excited for a small gain.

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From this point onward, CLSN traded in a range between $2.8 and $2.7 for quite some time. I considered buying again into a breakout out of this range. However, when CLSN fell below the $2.7 support, I considered the chart to be „broken“ i.e. the pattern not to have worked out and I stopped watching CLSN.

As it turns out however, CLSN came back, broke out of the range at 9 pm (European time) and went as high as $3.15.

Thus, CLSN did have its bounce, albeit a small one. However, the bounce was a slow one that basically lasted the whole trading day whereas I had expected a strong morning spike in the first two hours of the session.

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Another stock that decided to make its move was CCCR. In „Watches for Monday & Update on OLLI“ I wrote about CCCR´s character of suddenly coming back after days and sometimes weeks of fading volume. Already two times CCCR´s share price had been in a down trend with a corresponding downtrend in volume. Then, CCCR would suddenly squeeze up on increased volume.

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And voilà, CCCR did it again on Wednesday. However, as for CLSN it did so in a way I did not foresee.

CCCR opened the day lower on minuscule volume and only moved little in the first hours of the day. At this point I discarded the chart because as for CLSN I considered the pattern not to work out. However, CCCR grinded its way up throughout the day and later in the trading session more volume came in too.

Once more, the pattern worked out on the daily chart but did not occur as expected. Given the volatility and illiquidity of CCCR I do not regret missing this play though.

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08.07.2017

One thing that I have observed is the fact that I have the tendency to trade worse once I achieve the mark of 50% winning trades. At this point I tend jump into trades that are not right for me. Whether I get greedy, trying to get over the 50% hurdle or whether I subconsciously manipulate myself – I don´t know. But on Thursday the same thing happened again.

Another thing that I realized once more is that my exits when stopping out of a position usually are great. After my stop losses hit, the stocks usually trade down to levels where I definitely would not have held my shares anymore. What still is to be criticized, and I already wrote about this at length, are my entries.

These two aspects of my trading could also be observed on Thursday.  Fueled by my previous day´s winning trade and the strong „bounce pattern“, I focused my attention on Bitcoin Services, Inc. (BTSC). Backed by the recent Bitcoin mania this had gone from 2 cents a few weeks ago to a high of 20 cents. Then however, it had crashed to the 7-8 cent area. Maybe at this point it was just myself wanting to trade but the chart was shouting out to me „Bounce Play!“. Given the fact, that Bitcoin was up on the day a bounce seemed likely.

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So far so good. But my entry was terrible. When the market opened, BTSC jumped from around 8.36 cents to 9 cents – I was not in. „You idiot predicted this move and you are not in this trade, buy before it is too late!“ – fear of missing out kicked in and when the first retracement took place I „took advantage“ of the dip and bought at 8.95 cents – pretty much at the top. Right after my entry, BTSC started its decent and in the following minutes traded in the range between 8.3 cents and 8.9 cents. This actually is a range of 7% (!!!). BTSC tends to be very volatile. If one does not take account of this and enters with a big position size, a „consolidation like this“ can easily cause a trigger of one´s stop loss. One thing I had done right before buying BTSC, was observing its volatility and accordingly entering with a very small position size.

Consequently, there I was with my position and was hoping that we would break out of the range – to the right (up) side. For some minutes it looked good and a massive amount of buyers at 8.5 cents or above showed up. When more and more buyers were taken out by the sellers however, the tape was indicating weakness. When the 8.5 level broke, I took my chance and exited at 8.45 cents for a small loss.

After going as low as 6.7 cents, BTSC finally did come back and closed at its highs of 9 cents.

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09.09.2017

Friday was the most frustrating day of the week since it somehow was a day of missed opportunities. This day emphasized the distinction that I made in the beginning of the post – there is a difference between the correct directional bias and correct trade implementation.

My focus once more was on BTSC. Since it had not experienced a real bounce on Thursday I expected the bounce on Friday based off of the daily chart.

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Because of the strong close I expected a morning spike. However, I committed myself to not chase the stock once more but rather to buy after a consolidation phase even if this would have meant that I missed the move.

In fact, in the first minutes of the session BTSC tried to spike but quickly pulled back and consolidated. It then made its way back up and at the 9 cents level quickly spiked to 9.5 cents. At this point I thought a break of the high of the day was likely and bought on a „dip“ at 9.2 cents. Event though I bought rather high, just as the day before, my entry at this point was according to plan and can be justified in retrospect. Nevertheless, the entry turned out not to be too well chosen and BTSC sold off subsequently. However, in the ensuring minutes the lows became continuously higher as can be seen from the trend line on the chart below. There was a clear uptrend. During this time I continuously watched level 2 which I think was to my detriment at this point since it displayed a lot of noise. When BTSC tested the level of 9.4 cents for the second time and incredibly many sellers showed up on level 2, I decided to exit my position and sold at 9.4 cents.

This however, was the worst exit possible, not because of what happened subsequently but because of the irrationality of the trade. A few minutes before I had committed myself to only sell if BTSC would trade below the trend line, taking out „key“ levels. This did not happen however. Rather I sold at the 9.4 cents level because there I could lock in „some profit“ and „at least not lose“. This however is the completely wrong approach to trading. I have to be comfortable loosing a little bit in the pursuit for bigger wins – and given my small position size selling below the trend line in the low 9s would not have resulted in a big loss.

However, I exited and BTSC grinded its way up to as high as 11 cents. During all this time it perfectly held the trend line. When it finally broke the trend, it consolidated for some minutes before crashing from 10.8 cents to 9.6 cents in a matter of minutes.

Due to my small position size, taking into account transaction costs I basically broke even on this trade. However I have to mark it as a loss.

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At first sight, not taking advantage of this great opportunity feels very very bad. I literally sold minutes before buyers rushed in and BTSC went to new highs. What makes matters even worse is the fact that my sell decision was led 99% by fear of loosing. Whereas I have pointed out my strong exits in the beginning of this post, this was the worst exit which I ever executed in my opinion.

Despite these negative facts, I once more was on the right track of strong potential.  „Only“ my execution was lacking precision which makes me confident that in the future (maybe already next week ?) I will be able  to better trade these incredible opportunities.

However, I am well aware of the fact that I must not be in this mood, appreciating possibilities while I am still loosing on my trades for too long. This relates to the next missed opportunity of Friday as well, which seems even more stupid.

The shares of the technology company MoSys, Inc. (MOSY) offered the perfect opportunity on Friday. This stock had squeezed from the 80 cents area to almost $2 on Wednesday. After the crash on Thursday one could be rather certain that short sellers would be crowded in this trade.

When the market opened, MOSY offered the perfect setup of a rather quite beginning of the trading session. MOSY held support, put in higher highs and was close to breaking the high of the day. In the $1.35 area the perfect entry presented itself with a risk of the high $1.20s. As it turns out, MOSY quickly spiked to up to $1.7 in a matter of minutes ones the high of the day was broken an short sellers started to cover their positions.

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I have to admit that my possible trade idea sounds like the worst hindsight bias possible but I have to refer to my older post „Watches for Monday & Update on OLLI“, where I wrote regarding SPI:

What I would like to see on Monday is a quite open, possibly even a breve morning panic with subsequent recovery and higher lows towards the red to green threshold. I would then enter my position on these higher lows in anticipation of the break from red to green.

Given this perfect setup it feels even worse that this play was not on my watchlist. But as I mentioned previously, these bounce plays seriously seem to work and I will be freshly attacking on Monday!

Best,

Nils

LINU squeezes

In my last post I have expressed my expectations regarding three stocks that were likely to squeeze shorts soon – CCCR, LINU and SPI. Yesterday (06.06.2017) both LINU and SPI decided to make their moves. Since I was not watching the markets at this time, I ended up sitting at the sidelines not trading either of the two stocks.

LINU ended up offering a great opportunity. The stock opened at 38 cents and after four minutes of consolidation it started its squeeze up to 55 cents. This incredible percentage gain happened in less than 10 minutes and on increased volume. After the first spike, LINU gave back most of its profits but later in the day squeezed once more to a new high of 58 cents. All in all, LINU offered the perfect bounce play.

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SPI presented an opportunity, albeit a small one, too. After the open at $1.4 it retraced back to $1.38. Then however it spiked to as high as 1.63 in less than 10 minutes. Even though the spike was less pronounced in magnitude than LINU´s one, it too offered a nice percentage return.

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Today, I will be keeping a close eye on a similar play. The company to be watched is Celsion Corporation (CLSN), a biotechnology company. CLSN on Monday spiked up to as high as $4.96 on positive drug trial news. Since then, it has been giving back most of its profits and currently trades at $2.85, just above strong support in the $2.6s.

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Let´s see whether this can spike today.

Best,

Nils

Watches for Monday & Update on OLLI

In my last post I have introduced various setups that I want to focus on in the near future. One of these setups is buying the squeeze on a former runner, a stock that has been down after its strong appreciation.

With regard to this pattern, there are three stocks I have been watching during the last few days and which will be my main focus on Monday. These are Chinca Commercial Credit Inc. (CCCR), SPI Energy Co., Ltd. (SPI) and LiNiu Technology Group (LINU).

CCCR, the first on our list, has been in play for many weeks already. After its one day spike from $1 to almost $3  in the beginning of April, it has spiked again and again.

Below one sees how CCCR tends to behave. After the first initial spike on almost 7 million shares volume the stock gave back most of its gains in the ensuring weeks while volume almost completely disappeared. We see that during this time there was a downward trend in both volume and the price of the stock. Then, suddenly one day in mid April CCCR squeezes from $1.4 to $2.2 starting a multi-day uptrend. Again, what follows is a retracement in both price and liquidity. In mid May it decides to squeeze again on increased volume from around $2.1 to $2.8. Since then CCCR has been moving sideways while liquidity has dried up.

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Given its chart, the development of volume and the price action I believe that there is another potential squeeze in CCCR and I will watch this one closely on Monday.

Now let us have a look at SPI. Wow! This one increased from $0.2 to $2.4 – a 12 fold increase! Then, it came back down for two days. Unfortunately I missed the third day when it once more squeezed short sellers from $0.8 to almost $2. Since then SPI has experienced two rather strong down days, giving back some new appreciation.

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I believe that given the current situation and given its incredible appreciation many short sellers are comfortably holding short positions. This is what could lead to a renewed squeeze in my opinion.

What I would like to see on Monday is a quite open, possibly even a breve morning panic with subsequent recovery and higher lows towards the red to green threshold. I would then enter my position on these higher lows in anticipation of the break from red to green.

LINU offers a similar set up as SPI. Even though it ended up losing 30% on Friday it tried to squeeze shorts in the morning. After a quick morning panic LINU grinded its way back up and held close to opening price at $0.6. At this point I was tempted to buy. However, there was an incredible wall of sellers to be seen on the Level2. Thus, I referred from entering and was right in doing so as it turns out.

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Despite LINU´s crash on Friday, I still will be watching out for a possible squeeze on Monday with the same expected setup as for SPI.

As a last thing I want to update on my new entry into OLLI. Ollie´s Bargain Outlet announced earnings on Wednesday 31 May. As so often in the past years, earnings have been growing and beat analyst expectations. As a reaction to this OLLI spiked up to a high of $44 on Thursday. At the same time, volume was at record levels. I missed my entry on Thursday but took advantage of a correction on Friday to enter at $43. In anticipation of possible further correction I have put in a wide stop but I am confident about OLLI´s medium term prospects.

Best,

Nils

 

What to play & Sale of OLLI

One of my goals in trading recently has been to be more selective on which setups and patterns to trade. Even though I think that one can be successful in the markets, undoubtedly there is a lot of randomness inherent in the price action of stocks. Jumping into everything that is moving disregarding other conditions can be lethal in such a competitive and unforgiving environment.

One has to be selective – I have to become super selective. Therefore, in this post I want to present the current long patterns that I will focus on in the future.

  1. Breakouts

I am still a believer in the good old breakout, meaning that a stock finally breaks out of a range that it previously had trading in, preferably for many months. One has to distinguish between the two types of stocks, namely OTC or NASDAQ stocks.

1.1 OTC Breakouts

In my distorted opinion OTC breakouts tend to be the most reliable ones. Even though my last try in playing this pattern did not succeed, there is an ample sample size to back up my claims – at least that´s what I believe.. „CONFIRMATION BIAS!“ one might rightfully respond. However, in order to mitigate this problem, for some time now, I have adapted the habit of writing down my expectations regarding the movements of the stocks I am watching. When I then later checked if what I had „predicted“ had come true, the anticipated breakout had materialized in many cases.

One thing about breakouts is that one should not expect them to be perfect. After breaking out of the range, the stock very well may come down under the threshold again. Patience and strong nerves are required in this case – something that lead to myself giving back my profits in LQMT.

OTC stocks tend to gap up the next day after the breakout. Therefore, I like to buy them in the last trading hour, preferably on a dip. Often, they spike into the close and open nicely the next morning.

In April, PVCT spiked on strong volume close to its previous high of 6 cents. The next morning it gapped up and spiked as high as 6.79 cents before retracing.

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BTSC, broke out of its multimonth high at 2.9 cents. During the day it came back and retested the breakout. Support did hold however, A spike into the close, a subsequent gap up and a morning squeeze up to 4.6 cents resulted.

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AMLH closed just beneath its breakout level at 0.7 cents and then gapped up almost 10% the following morning.

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After breaking out, NBGGY has advanced impressively.

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1.2 NASDAQ breakouts

NASDAQ breakouts in my opinion are less reliable. The breakout here is not as strong an indicator. Below we see both CDTI and HUSA breaking out long-time highs. However, neither of the two gapped up. Instead, a strong consolidation set it.

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2. Former runners

Many good patterns present themselves in recently strong stocks. These are stocks having advanced many percentage points in the past, gradually coming down. There are three things I like to watch for.

2.1 Dip buying the morning panic

When a stock goes parabolic at some point it will crash. Often, the crash happens one morning and then it usually happens quickly. However, most often the stock rebounds strongly from its lows gaining back incredible percentages. Even though it is risky to catch a falling knife, buying opportunities emerge here – but please be careful.

ELED first went from 1 cent to over five cents. Then, when it finally crashed one morning it went beneath 3.4 cents before rebounding back to a high of 4.3 cents.

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ZPAS was one of the more impressive pumps in the recent past. Over weeks it literally increased every day. It went from around $1.5 to almost $3.75 before coming down.

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On one morning it crashed down to $2.1 before rebounding back to $3.1 – almost 50% of a bounce.

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2.2 Buying some days later

These former runner do not only offer dip buys. After the first crash usually a decline sets in for 2-4 days. Then however, many recently strong stocks spike again.

Two days after its crash LWLG came back.

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Three days after its crash CYCC came back very impressively.

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2.3 Buying red to green

Especially for these rebound plays I look for one setup. This is the threshold when the stock moves from being red on the day to green on the day. Then, often a spike results. This is most likely related to the fact that many, many short sellers are crowded in the downwards moving stock at this point. When the stock comes back again they cover –  most likely when it moves to being green on the day. A short squeeze ensures.

After two crazy days during which its price had multiplied 5 times, finally MTBC seemed to crash. It panicked in the morning and shorts stacked up. Then however, when it broke the previous day´s close at $1.55 it spiked up to almost $2.

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Just a day later the same thing happened. The stock had closed weak the previous day and opened rather weak. Then however, it broke the red to green mark and squeezed up to $2.7.

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These are just some of the patters which I think have become attractive recently. I will try to take my trades in a very selective way and only choose the ones offering the best reward-risk.

If these patterns really work or whether confirmation and hindsight biases work against me in this case is something that real trading will have to show.

Before leaving you guys I just want to announce that I stopped out of my OLLI position last Friday at $38.8. I would have enjoyed riding OLLI up some more but it has been weak after reaching its highs at $41. Since I did not want to give back too many of my profits I had set set my stop at this level of $38.8. Still, I bought at $34.2 and exited at $38.8 – overall a nice profit.

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Best,

Nils

Recap LQMT

I still have to document a trade from last week – unfortunately a loosing one. Liquidmetal Technologies Inc. (LQMT), a small company trading over the counter, was my target. After some time of consolidation, this had been moving up close to its previous highs of 29 cents. Given the price development depicted in the graph below, I expected a breakout to new highs on Thursday.

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LQMT opened strongly and I entered a small position at 28.62 cents. Due to relative illiquidity of the stock I was not comfortable playing it bigger.

At this point demand strongly increased and sellers vanished. On the level 2 one could steadily see big offers coming in and the ask being taken out. The whole price action and the level 2 tape seemed very bullish and LQMT went as high as 29.5 cents. At this point I was comfortably up on my trade. However, I did not want to take profits due to both my small position size and my goal to stay longer in the trade. In my trading plan I had promised myself to hold through momentary pullbacks and consolidations in order to ride the breakout up longer.

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Thus, I did not sell when signs of weakness showed up and at first I turned out to be right in doing so. Then however, something odd happened. At the highs of 29.5 cents, when the bullish action was at its peak, suddenly all the strong offers disappeared and LQMT dropped strongly down to just above 28.8 cents in a matter of two minutes.

This was the point where I made a serious mistake. I told myself that since I had promised myself to hold through consolidation even if LQMT would trade below the breakout level I would not panic and sell. Instead, I decided to hold further and adjust my stop to just below 28.7 cents. However, this was not a normal consolidation. Given the odd price action I should have seen that something was wrong. After some additional minutes LQMT completely crashed. Even though I had entered my stop it took me a while to liquidate my position and I ended up selling most of my stock at 28.11 cents.

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After rebounding a little, LQMT finally dropped as low as 27.4 cents.

In the days following Thursday, the breakout finally worked out more or less and LQMT went as high as 32.4 cents before retracing again.

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Lesson of this trade? If there are signs of something being wrong, just get out!

Best, Nils

Flip Of A Coin

I just want to write a short summary on my most recent trade on last Thursday. The stock that I did trade was Clean Diesel Technologies, Inc. (CDTI) which is a technology company active in automotive emissions solutions. On Wednesday towards the end of the trading day this popped up on my scanner because it was close to its former high of around $3.54. However, late in the trading day it remained at a lower level of around $3.45 until the market closed. At this point I should have been buying the stock already. I in fact had been thinking about doing it. At this point CDTI 1. was close to a short-term breakout 2. had advanced much during the day 3. had closed relatively strong. All this made it likely that momentum buyers would jump in the next morning. There were good odds for a gap up and a morning spike. I remained gun shy however and did not buy overnight.

The next morning CDTI did gap up to $3.5 and immediately traded towards the upside. After it shortly broke out of its $3.54 high it bounced back and I bought at $3.53. After the dip it spiked right up to the $3.60s. There however, I saw a ton of sellers rushing in on the level two and I sold my position at $3.625. This turned out to be a good decision because CDTI retraced strongly, giving back all its gains and going as low as the $3.47s. At this point my stop would most likely have kicked in. Even though CDTI went as high as $3.7 on the day, I was happy with my small gains since the stock traded in a very choppy manner. In my opinion it did not offer many opportunities to trade.

CDTI

This does not mean however that everything was perfect. Analyzing my trades has shown me how short my holding period generally is. While there is the possibility that this kind of trading style fits my personality the best, it is my goal to hold stocks breaking out for a longer time. This means that I should be looking for stocks that do not trade in a choppy manner as CDTI tends to do.

After the past two green trades I am back to the point where my winning rate is 50%. Even though I am still down in terms of profits, my losses have decreased to the sum of transaction costs. This of course is not yet a compelling argument for my trading skills. I could basically just toss a coin to decide whether to buy or to sell, right? I do not know if this is true. After me analyzing my gains and losses my trades have actually improved in terms of myself following my plans and not buying at random points. Additionally, my confidence has increased. But the sample size remains fairly small and only the future will show.

I hope that I can continue on this more disciplined path in the future and eventually become profitable.

Until then let´s walk the path together.

Best,

Nils

Playing the bounce on CBLI

As I recently have expressed, there are chart patterns that repeat themselves over and over again. Yesterday, I spotted one sock offering a particularly interesting chart and decided to watch it more closely, finally trading it.

Cleveland BioLabs, Inc. (CBLI) is an US based healthcare & biotechnology company. With a market capitalization of 51.65 million and a float of only 4.42 million shares it perfectly fits my low market capitalization/low float criteria. CBLI recently spiked big after news of approval of its plans in Europe by the European Medical Agency. As we can see below, after another spike it had been retracing for two days before yesterday.

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So what is the pattern here? Recently we have seen that big gainers like this tend to bounce back strongly after 2-4 days of fading on low volume. Given this pattern, I of course did not know that CBLI would be strong yesterday but I had it on the top of my watchlist. My plan was to enter on a possible break out of the premarket high or a possible bull flag.

At the market open, CBLI gapped down slightly and opened strong, trying to spike. At this point my discipline got tested for the first time. Fear of missing out kicked in and for a moment I thought about buying at $3.97 in anticipation of the break of $4. However, since this was not part of my plan I decided to wait for the confirmation of the break out of the morning high. This turned out to be a good decision since the stock started a 30 minutes lasting downwards trend, going as low as $3.82. At this point I definitely would have been stopped out.

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Then however it happened. CBLI went from $3.83 up to $4.05 in just one minute. Even though it could not hold this level it continued strong in the next minute. At this point my system kicked in and I entered my position at $4, a good entry as it turns out. This level of $4 was crucial since it represented the switch of CBLI being red to green on the day, a psychological important factor.

From this point onwards however my decisions deteriorated. From other traders I heard that the spike was a result of pump in a different chat room. This alerted me and at the first sign of weakness I sold at $4.1 for a small gain. My holding time was only 2 minutes long! CBLI continued to trend up as high as $4.47. I should definitely have been able to ride at leas the spike up to $4.4.

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The exit in this trade represents a limitation that I am facing in my trading. My average loss is twice the size of my average gain. This would require me to have a huge win-loss ratio just to break even. So why does this discrepancy exist? The size of my losses is not the problem. Generally, my exits are well chosen (some entries in the past were not, as I elaborated on in the last post). The same goes for my position size. I have adjusted my position size to allow for wider stops, maintaining profit potential at the same time. The issue I will need to work on is that I have to „let my winners run“ as they say in the trend following community. I have to be willing to give back a small gain in order to book the large gain. Especially in cases as yesterday, I have to stay in the trade if the chart and the tape indicate that the trend may continue.

The crux of the matter is that I do not only need a plan for my entries but more importantly I need a plan for how to take profits as well.

When the opportunity is there, I have to take advantage of it.

Best,

Nils