History Repeats Itself Even More

My last trade was based on an old pattern that repeated itself. There is another pattern that I would like to elaborate a little bit more on. This pattern has existed for almost two decades and maybe even longer. Especially recently it has become more and more relevant. This is the pattern of a stock moving exponentially for a few  days before finally crashing. After the crash there often is a partial rebounce before a month long slow decline sets in.

Do you rembmer my post in November about how “Donald Makes Shipping Great Again“? What stocks in the shipping services industry were doing at this time, now can be observed again.

Let´s start with one of the Shippers to see the pattern. Sino-Global Shipping America, Ltd. (SINO) in a matter of a week went from $1 a share to as high as $15. That´s right – the chart could not even fit the whole parabolic move in the output. And then? As fast as it had increased it collapsed again! What happened afterwards though is interesting. As you will see later, this pattern offers one to buy into a rebound as well. At day five of the collapse SINO decided to go the other way and it spiked. This spike may not look that significant on the chart. However, make no mistake! This was basically a spike from just over $3 to around $5.5. I would say that is significant!

SINO

Let´s look at the very recent example Cannabics Pharmaceuticals Inc. (CNBX), a biotechnology company related to the medical use of Cannabis. How does the chart look like? The stock went from $1 to $7.5 before crashing. And again, there was a nice bounce of more than 100% before the stock faded downwards.

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Let´s look at the next one! Is this a copy of the previous one? No, not at all! This one belongs to Mentor Capital Inc. (MNTR) a private equity firm! Again, the stock skyrockets, crashes, has a short bounce and then starts fading away. mntr

Next! eMedia Corp Inc. (EMMD) is different in the sense that the up move was more gradual and took longer. This is because EMMD is a pump whose stock price moved upward since paid promoters were sending out e-mails “recommending” to buy the stock. But what do we have? Spike, crash, rebounce and soon there will be a fade.

emmd

Airbone Wireless Network (ABWN) – another pump. What happened? You know the pattern by now!

ABWN

So why do I mention this pattern now and more importantly did I trade this pattern? It always easy to talk about stuff if you do not have skin in the game. No, I did not trade this pattern yet! And yes, buying the upside, shorting the downside and buying the rebounce is very risky if one is not attentive and does not cut his losses.  I wanted to write about this chart pattern because currently there are two stocks which seem to follow this very same way!

The first one is Aurinia Pharmaceuticals Inc. (AUPH) another biotechnology stock (this sector is pretty hot at the moment). It recently more than doubled, gapped down this morning and seems to have its crash these days. If so, I would expect the normal partial rebounce.

AUPH

Seconldy, Qualstar Corporation seems as if the uptrend is over and momentum has turned negative. qbak

Will I play these two? Most likely no! Due to exams I won´t be able to day trade in the next two weeks (again, this guy is talking without skin in the game). But let´s see what happens to these two stocks and whether they can follow the pattern.

And don´t worry. I am sure the pattern will emerge very soon in the future again!

Best,

Nils

 

 

History repeats itself

Thursday and Friday I traded Citius Pharmaceuticals (CTXR). The shares of this biotechnology company are very illiquid with the typical daily trading volume being way below 100 thousand shares.

What caught my eyes on Thursday towards the end of the trading session were both the increased volume and price performance. On this day CTXR traded on a volume of 250 thousand shares which given my position size is acceptable. Further, the price increased significantly from under 60 cents to closing at 70 cents.

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I did some chart analysis and it turned out that almost always when the stock had a strong day with increased volume the stock would follow a pattern the next day.  There would be a  gap up and at least a short morning spike. I decided to take this opportunity. Just minutes before the close of the trading session I bought my shares at 70 cents. Due to the illiquidity and the speculative nature of this trade I kept my position size small.

Despite the great setup the liquidity made me nervous. Even though it was not to expect that liquidity would go back to zero on Friday, I still was concerned that I maybe would not be able to sell my shares. What comforted me was the fact that for the past years once liquidity had increased it usually would taper off slowly over many days. Secondly, my plan was to sell my position in the first 30 minutes after the market open. This is usually the most liquid time and I inferred that it would allow me to sell into the increased liquidity.

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When the market opened, what I had envisioned did materialize. The stock gapped up from 70 cents to 77 cents and more buyers came in. After a few minutes I decided to sell into strength and got out of my position at an average of 79 cents. It turned out that my exit was a little bit too hasty since a few minutes later CTXR touched 85 cents. However, I was happy to make just under 13% on my position. I played the predictable part of this setup and followed my plan.

The improvements of the past trades make me be optimistic about the future.

Best,

Nils

 

CBAY Long

The newes trade that I want to document is a long trade in Cymabay Therapeutics, Inc (CBAY) which is a biotechnology company active in the healthcare sector.

On Monday this showed up on my radar due to its recent relative price strength and the possibility of a breakout above a 52 week high of $3.4. On Tuesday, at around 9 pm eastern time it finally broke out.

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My plan had been to buy into a probable breakout towards the close but when the opportunity presented itself I followed my plan and entered at $3.39. In the following minutes CBAY  went straight to $3.6. This strength could not be upheld however and CBAY retraced strongly to $3.33. Towards, the end of the trading session, buyers came in and the stock closed 10 cents above its breakout level. The price action made me very confident about the prospects of CBAY gapping up and morning spiking the next day. Aftermarket, CBAY mostly traded in the $3.60s and even had one print as high as $3.94. At this point I was very confident and already imagined my big profits.

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Around 30 minutes before the market open on Wednesday the atmosphere changed however and more and more sellers came in while buyers dropped out. When the market opened finally, the stock retraced back to the low $3.5s and was not able to spike. I had planned for this eventuality and since this was not the pattern giving me an edge, I sold my shares at $3.50. The exit was well chosen since the stock subsequently traded as low as $3.41. As of writing CBAY has regained its strength and trades at $3.7. However, I was in this trade only for a possible gap up and morning spike and I did not intend to hold through the afternoon. Therefore, I am satisfied with my trading.

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I made a small profit of a little over 3% but including transaction costs this was a break-even trade. I would take a similar trade like this anytime in the future since in the past setups like this have offered a favorable success rate.

Best,

Nils