stock runner – Vant Trading

Small priced, low float, pump and dumps, and supernovas. These are some of the terms you might here when seeing stocks that move like this. These are typically shady companies with small stock floats that usually trade below $1, but anywhere from $1-4 may qualify. These companies do very little in terms of trading shares and price movement. However then comes a new piece, usually not significant, or a pump up from someone, or maybe there is no catalyst at all. And following this, the stock goes supernova. The low share count of these stocks makes it easier for large players to manipulate and drive the stock higher, making it a momentum scalper’s dream, but also a nightmare to those who aren’t experienced in trading them.

AWX is one of the most recent examples of this. First, let’s show you the daily chart of the move we are talking about for those who don’t already know of it.

Yeah. And that isn’t even showing premarket prices. Now let’s see how high this went premarket.

Yep. This baby went crazy, as many of these stocks have done in the past and will continue to do. Now obviously with these moves can come a lot of trading opportunity for you day traders who like these hyperactive, fast movers. Now many times the stocks will have a news catalyst that may drive them higher and bring traders’ attention to the stock. Things like winning a contract, patent disputes, court rulings, new products, investments, or even just shifts in what they are making (we are looking at you blockchainers). However, AWX really did not have any news releases prior to this move. It just kind of started moving. And the more it moved, the faster that pace quickened as more traders started trading it.

The First Wave of Moves

Let’s look at the charts and potentials of the trading prior to the largest move and following downmove.

So this is a more reasonable look at what many of these low float runners do before they top off. YES we know that this is looking back in time and trying to analyze the best entries which is monday morning quarterbacking, but looking back through these and identifying patterns will help you find better entries the next time around.

As we can see this upmove was more controlled and choppy, with a gradual rise with pullbacks and spikes along the way. There was a pretty decent trendline that the stock could not hold above as it grinded higher. Keep this trendline in your mind for later. It is also important to note, for you people that may have watched this over the three days and were trying to short it while it ran, that it never managed to break premarket lows. This is a pretty big deal to many because the fact that it can’t do it, shows that the sellers were never really in control. Now trading these may require a fair bit of anticipation because when they do break, you need to be fast in many cases but regardless. There was never enough selling pressure to make you think this thing was ready to go down.

Some possible trades in this, and there are many many trades in this depending on who you are as a trader, are noted by some arrows. Buying these for an overnight gap can work if the stock finished strong. So for example that first Tuesday that the stock moved higher on. The stock closed at the high of day. The momentum is strong and there is buying into the close. Although not always, there is a chance that this buying strength translates into a gap higher overnight. And we got that all 3 days the stock closed near highs, and even on the day after as well. However keep in mind that the higher this thing goes, the more risk you carry taking a position overnight because there is more room for it to hurt you if it does gap down. All it takes is the stock to announce a secondary or a news piece and that stock can tank overnight. Also you run risk of a stock being halted by the exchange if it is really nutty so be very careful with holding these for long. It is considered a more intermediate to advanced move. One of the other trades you could have taken is buying the breakout to new highs every day for a scalp. Anytime that stock broke the highs marked by arrows it continued higher. This does not always work but watching a stock trade as it approaches the highs can give you better insight into how it is behaving into that key level.

The Big Premarket Move

There is what the stock did on that big blowout day. And it did it all premarket and after hours! So sometimes some of the best price action may be during the extended hours. Now how you decide to trade moments like these varies per trader and we won’t dive into that. What we will cover about this day is leading into the open. You can see that selling pressure going from about 8 AM est until the open. That stock topped at 36 but opened around $24! That is some heavy selling pressure into the open. Now many traders love the profits shorting these back down. If you like doing this you need to make sure you limit your risk because who is to say that thing wouldn’t rebound on the open and go to $40. We have seen many traders get blown out by being stubborn in their shorts.

But that selling pressure provided a good idea of which direction you may want to be biased in when watching this stock for day trades. And it had an immediate opening flush as Longs panicked out and took profits quickly. There were some dip buying chances in there. But largely at this point after that opening move, most traders can smell blood in the water and most traders are looking to short pops (with caution). And you can see that thing grinded down the rest of the day. And as you will see, it continued lower in the days following. So once a momo stock like this is broken and the momentum is no longer to the upside like that, chances are it is done its’ move for now and you will have a few days of selling pressure. There can be some more pops in there but for the next few days, the sellers are in control. As we show you below.

So while these plays can be very fun to watch and can provide a lot of opportunity for day traders, they all come with their own new and extreme set of risks. Fast moving, illiquid stocks can slip you fast. Some may be halted by the exchange and open back where they started, absolutely crushing longs. It all depends. One other thing we noted is that according to a few seeking alpha articles, the company came out during this move and disclosed a large investment by MintBroker International. They said that MintBroker owned about 60% of its’ 3.19 Million outstanding shares as of May 4th (prior to this). That is a big deal! That means there are even less shares out there in the average traders’ hands and this thing can really move! And MintBroker controls a large portion of this stock’s float. Now we don’t know what they did with their shares or if they were even involved in this move, but this is something experienced traders will take note of when they decide to trade this stock.

We aren’t telling you how to trade these, or even that you have to, but rather they are worth studying because patterns repeat themselves and traders can make and lose money both long and short during these moves. It all depends on having a trading plan and respecting your exits and entries and doing the necessary review to improve.

There are many companies that make a splash in the markets or in the news, only to find failure a short time later. These stocks that tend to reach headlines, social media trends, and overall watercooler talk to this degree tend to present traders with numerous opportunities to make money. So when these stocks and plays occur, it is important that we review them and learn from them. HMNY is one of those stocks as of late. In this post we will breakdown who HMNY is, for those who haven’t been paying attention, and what the trade we took was. 

For Those Who Don’t Know

HMNY, or Helios + Matheson, bought a majority stake in a company called “movie pass” in August of 2017. This is a company that was trying to be a subscription-based system to go to the movies. With move pass you can pay a monthly fee, and virtually go to the movies as many times as you want in that month. There were obviously some other stipulations and string attached but that was largely the business model and when the model started out, it was only $9.95 a month. A month later, they announced they already had over 400,000 paying subscribers and in October of 2017 they stated their projections were the exceeding of 3.1 million subscribers through August 2018. This naturally caused some volatility and stir in the stock and over the course of about 1 month, the stock went up over 1000%. This obviously became a hot topic to talk about as many people came out on both sides of the argument as to whether it was a sustainable business approach and what the true value of the stock was. 

Now I don’t really care who you are as a company but trading up to that degree in that span of time, is almost always going to be overblow. And in the span of another month, by the end of October 2017, the stock had reverted back to only being up around 300%+ since the beginning of September. This is still a major move for such a small priced stock and HMNY was not done being in the news just yet. Over the following months the news reports from HMNY started to have less and less of a reaction in the stock price and traders and investors alike started to realize one major thing, Movie Pass was not making money to cover what they were spending.

At various points in 2018 Movie Pass stated that they were changing their model/system. They changed their prices numerous times, the movies offered, the process to getting your tickets, and everything else they could think of. They tried various things as the stock price slowly traded back down to $0 time and time again until eventually they decided to perform a 250:1 reverse stock split. This bring us to the specific trade we are going to cover. 

The Reverse Stock Split Short

So HMNY was trading at pennies, trading as low as .08 just prior to the reverse split. Movie Pass was clearly not retaining that growth and popularity it had projected and was not making enough money to sustain how much it was paying for movie tickets. Investors and analysts were looking into their cash flow and statements and seeing that they only had enough cash on hand for a few more months of operation. So in an attempt to possibly boost the stock price back up to a reasonable price and maybe get some volatility back and save the stock, HMNY performed a 250:1 reverse stock split near the end of July. Now this isn’t the largest stock split in history but trust me, it is much larger than normal. 

What is a Reverse Stock Split?

As we have covered in lesson plans, a reverse stock split is what a company decides to decrease the amount of outstanding shares there are on the market to bring about a larger stock price. They typically do this is they want to decrease share float or if the stock price is getting too low for the company’s standards, as well as a variety of other reasons. 

So lets give an example: 

Suppose company A has 1,000,000 shares oustanding and the stock is trading at $10 a share. That means the company’s value, or market cap, is $10,000,000 (10X1,000,000). So now say that the company decides to do a 2:1 reverse stock split. That means that for every 2 shares of the stock that exists, there will now be one. So instead of 1,000,000 shares there will be 500,000. Well technically the company fundamentals have not changed at all. Nothing has changed about the company, so theoretically the stock should be trading at the same market cap the next day. So theoretically the next day the stock should be trading at $20 a share, still giving it a $10,000,000 market cap (20X500,000).  So if you had 1,000 shares of that stock at $10 prior to the reverse split, afterwards you would have 500 shares at $20. 

Back To The HMNY Trade

So theoretically, even though they have performed this crazy reverse split, nothing has changed about the company itself. So if you think it is going to $0, that theory should still technically hold true. Now we say technically because with such a large decrease in the share count comes much easier ways for shorts to get squeezed and for a stock to be manipulated higher or lower, if the share count is lower. And just because a company has issued a reverse stock split does NOT mean it has to go back down right away if at all. So there are still risks associated with trading these so aggressively. You never know, someone could have come out the next day and stated their intent to acquire HMNY and caused the stock to skyrocket. So if you want to, understandably, avoid some of this risk, there were still day trading opportunities GALORE in the following months shorting this thing. 

However, a company like HMNY that has such low cash flow, does not have the capital to keep the lights on for much longer, does not have a sustainable model, and has been absolutely crushed by the markets is a stock you should definitely watch. This reverse split caused HMNY to open up around $14 the next day, with the previous close being $21.25.

Now I know this is Monday morning quarterbacking but this is a trade that many traders, including us, had felt was worth putting on and it was very successful trade. As we write this blog HMNY has since returned back to trading at .07 a share!! So if you saw the news of the massive reverse split and you had capital to spare, you could have tried to put on as many shares short as possible. Some traders got over 1,000,000 shares short easily prior to the reverse split. Because for every 1 million shares you had short after the split you would only have 4,000. That following day the stock closed around $10 and you would have made 50%. If you very confident in your short you could have held that short EVERY day since the reverse split and not experienced a green day ONCE until August 6th, but by then the stock was trading at .06. 

Now again we are not saying to simply blindly short these reverse splits. And we aren’t even saying that if you wanted to play this stock you had to enter prior to the reverse split. But after the split occurred if you like to day trade these momentum, fast moving, low priced stocks, then this is a stock that provided endless opportunity. These are the plays that come around every once in a while that can provide opportunity even in the summer months. 

Here is a chart showing the post split price action the following days. I mean look at that selling.

And here is a more zoomed in chart of the 3 days with the most day-trading potential. I mean you could have simply shorted the break down of lows every day and been fairly confident in your entries. 

Tag: stock runner

The $AWX Supernova