Another week of great opportunities lies behind us. Given all this volatility I really have to pay attention to not give in to hindsight bias too much. I have to realize that I would not have traded many of these opportunities and that I may have lost on some. There is a huge difference between watching a great setup and actually trading it as we will see later.
Anyway, let´s have a look at the week.
On Monday we encountered once more a pattern which we have seen already so many times before. Shares of Envoy Group Corp. (ENVV) recently have been pumped following the known pattern. ENVV is a company that according to Yahoo Finance ” does not have any significant operations [but is] in the process of identifying and evaluating feasible business opportunities in the consumer products and technology industries”. Are you kidding me? Even after its crash this still has a 23 million market capitalization – so much about market efficiency.
After its pump like up grind for the past weeks, it gapped down on Monday and then panic set in. It went from 70 cents to around 36 cents in a matter of 4 minutes. Then however, the next three minutes gave the bounce opportunity too. In this short time-frame ENVV bounced from 36 cents to as high as 55 cents.
Tuesday brought once more my beloved bounce play pattern. Shares of Tearlab Corporation (TEAR), a $8 million market cap 3 million shares float company active in the healthcare business, spiked from $1.8 to $3.6 on Friday. On Monday TEAR sold off and then on Tuesday we got the bounce opportunity. After the sell-off in the morning from $2.8 to $2.6 TEAR recovered and trended upwards. When the open at 2.8 was broken the stock spiked up to $3. This move confirms an observation I already had made previously. Shares that trade for far more than $1 tend to have smaller percentage spikes than shares in the $1 or less range. However in this case there would have been ample opportunity to profit betwen the beginning of the uptrend in the $2.6s and the high of $3.
On Wednesday I learned a great lesson about ignorance. I finally got stopped out of my CHGG position. As you may remember I had entered my position on 12-07 at $13.3 based on the chart setup. Since then CHGG had shown a nice development and trended higher up to $14 on Tuesday. With CHGG trending higher, I had daily adjusted my hard stops upwards since I am not able to actively trade. Thus on Tuesday I set my stop at $13.9 arguing that this level would invalidate my trade. My ignorance on this trade materializes in the point that I was not even aware of the fact that CHGG was about to announce earnings on Wednesday. When earnings came out, they apparently disappointed and the stock gapped down to the mid $13s. I was lucky to be filled at $13.7. Then however, sentiment changed and CHGG spiked on huge volume to a high of $15.2.
My first reaction was that my stop should not have been based on an intraday level but rather on the price at close. I made this justification basically because I saw CHGG going to the moon just after I had been stopped out and I tried to rationalize that I should have been participating in this move . My second reaction was “earnings were announced? How ignorant can I be! I could have lost so much more!”. Earnings always are a guessing game. Even though I agree with my second reaction my third reaction was that I should not have been trading CHGG in the first place.
Why did I trade CHGG? Because due to my internship currently I am not able to trade the patterns that I feel more and more comfortable with. Swing trading stocks like CHGG and CBAY was the next best solution – a “b solution”. However, the markets are so competitive that I really only should be trading a methodology were I feel that I have an edge in. Do I have an edge in swing trading if I am even too ignorant to be aware of the fact that earnings are announced? Probably not! Thus the lesson that I take out of this experience is that I´ll exclusively trade my nr. 1 trading methodology and only A+ setups.
By the way even though I bought at $13.3 and sold at $13.7 I still lost money on the trade due to transactions costs and the fact that I bought with Euros when the Dollar was strong and sold when the Euro had strengthened against the Dollar – apparently another thing to keep in mind.
Besides CHGG, Wednesday offered another bounce play. Top Ships Inc., a shipping company, had spiked last week in sympathy with the DRYS squeeze that I talked about in last week´s recap. After the spike and two green days it sold off on Wednesday when it had its first red day.
In the first minutes of the day it sold off from around 45 cents to 38 cents before squeezing back to 50 cents as we can see on the one minute chart.
Thursday yet offered two more bounce plays. As I wrote on Friday I expected a bounce for AEZS and Thursday, admittedly later than expected, we got the opportunity. At this point AEZS had been selling off for four days. AEZS opened lower and then continued trading in a choppy way. After some upwards pressure however, AEZS went from around $2.13 to around $2.25 – yes, I have to admit that even a perfect entry and exit would only have allowed for small gains here.
DRYS offered larger percentage gains. Let´s rewind a bit. On Friday DRYS had spiked from around $1 to almost $4. Monday, Tuesday and Wednesday followed the sell-off. Short sellers probably got crowded in this strategy as in the past. Let us remember that this has a huge short float and shorting DRYS is probably one of the most crowded trades at the moment. Well, when DRYS came back on Thursday after selling off in the morning, it broke the morning high at $1.06 and squeezed shorts up to $1.29.
Additionally on Thursday we had the next awesome pump dip buy opportunity. 12 Retech Corporate Com (RETC) is a company with almost no information on the web. As a “serious investor” this limited information gives me much confidence in the company. As ENVV RETC had trended higher step by step for quite some time before crashing on Thursday. It sold off from around $2.5 to the 1.5s before coming back big time. From its lows it spiked back to $2.2 which reflects almost a 50% bounce. Buying these falling knives is dangerous though since there also was a fake bounce from $1.7 to $2.15.
Next week my eyes will be closely watching CAPR once more. This stock decided to spike a second time but could not hold its gains so far. Maybe there will be a bounce opportunity for this on Monday or Tuesday.