Volatility, Shorts, and Market Holidays, Oh My!
Dear Penny Stock Millionaire,
If you’ve been talking with other penny stock traders recently, you’ve probably heard them mention holiday trading for penny stocks…
How do holidays have an effect on the market? Simple: There are more wannabe traders at home gambling in the market. They’re on holiday, bored at home with their families, and they want to try to make some trades. They don’t know what they’re doing, and that can create predictable patterns.
I like to take advantage of those predictable patterns.
The holidays also bring more volatility. That’s mostly due to reduced trading hours and short-sellers covering their positions. The usual morning volatility carries right through into afternoon action. There’s no midday lull.
There have been some great examples recently of the holiday effect. I’ll share those tickers and charts later on, but first…
How Will You Prepare for Holiday Trading?
Use your holiday time to study and prepare for the market. Learn the patterns. Be prepared. This will probably happen again around Christmas and the new year … and most holidays usually, but it’s not an exact science.
I want to help prepare you so you can avoid shorting too soon and getting caught in a squeeze. Or even better, help prepare you to buy, since these moves can create huge potential on the long side.
Instead of using your holiday time overtrading and over-eating. Put your extra time to good use by studying. Build your knowledge of patterns and market moves so you’re prepared to recognize these patterns ahead of time. Study up!
A Warning About Holiday-Trading Short Squeezes
Short-sellers are trying to analyze penny stocks like real companies, using fundamentals.
They say, “Tim, short selling is the way to go, all these companies are worthless…”
And the truth is, they’re not wrong. Technically, yeah, all these companies are junk. And most of them will eventually go down.
Short-sellers are like the new promoters. And they lure in other newbie short sellers with their logical argument that all the companies are awful and the price will fall.
But they’re not fully transparent. They don’t share their losses when they’re getting squeezed out of their positions. And I know they’re taking losses because I get emails from them. People who aren’t even my students come to me saying, “I should’ve listened to you.”
I tried to warn them…
The problem is there are too many short-sellers these days. They’re getting in too quickly because they’re not prepared. They’re just shorting any stock that’s up on the day.
Short selling is a terrible strategy right now, especially risk-to-reward wise. It’s just too crowded. And these short squeezes happen so fast, it can be hard to cut your losses quickly.
New traders especially aren’t prepared for these moves. That’s why I warn new traders about the dangers of shorting, but at the same time, I don’t want them to stop. I’m grateful for the opportunities it creates for the rest of us. Be prepared to take advantage of it from the long side.
Now let’s look at some chart examples of the most recent holiday spikers…
4 Holiday Trading Examples
You may be wondering what’s so special about holiday trading? How’s it different than any other short squeeze? Well, take a look at the charts below and you’ll understand just how powerful these moves can be.
Paringa Resources Limited (NASDAQ: PNRL) — Morning Spike
On Wednesday morning, November 27, the day before Thanksgiving, PNRL had a huge morning spike. It went from the $1s to the $8s within an hour! On Friday, the stock collapsed, opening at $3 and closing in the low $2s. This is a good example of the volatility in the markets around the holidays.
Here’s the PNRL chart:
PNRL chart: November 27 & 29, 2019, holiday stock market volatility
— courtesy of StocksToTrade.com
Clovis Oncology, Inc. (NASDAQ: CLVS) — Earnings Winner/Short Squeeze
CLVS is a good example of an earnings winner.
Earnings winners can run longer than you think. Combine that with a Friday and a shortened holiday trading day, and you can get a pretty powerful move. CLVS squeezed from $12.55 to a high of $16.62! All before 11 a.m. It was the largest one-day move in its entire run-up. The short-sellers are just too early. It creates these giant short squeezes that just keep going.
That’s a great thing for longs!
Since its earnings release on November 7, the stock has gone from the $4.30s to a high of $17.37! It then dropped down to the mid $8s and has bounced back to the $11 range.
CLVS chart: 3-month, daily candlestick, holiday trading
— courtesy of StocksToTrade.com
Cancer Genetics, Inc. (NASDAQ: CGIX) — Short Squeeze
CGIX was up trending all day Friday, and then 10 minutes before market close, the stock goes from $7.20 to $9.20 in 3 minutes! That’s short-sellers getting squeezed HARD…
This stock isn’t normally a volatile stock, but with the added volatility from a shortened trading day and a Friday, it created a monster spike.
Take a look at the CGIX chart:
CGIX chart: November 29, 2019, 1-minute candlestick, holiday trading — courtesy of StocksToTrade.com
ASLAN Pharmaceuticals Limited (NASDAQ: ASLN) — Morning Spike
This stock was the big winner for the day with a huge morning spike. Friday morning spikes can go up more, and they can be faster than you think.
This stock doesn’t normally spike very fast — it barely moves 50 cents in a day. But with the increased volume it had in the days leading up to the holiday, it made the stock more volatile.
The two previous days the stock was spiking, it couldn’t hold its gains. And the big morning spike was no different. The stock went from $3 to $7 in seven minutes but then quickly faded off.
Some people were wondering if they should dip buy after the big move. I don’t dip buy holiday short squeezes. After the big moves, all the shorts are squeezed out and there are no shorts left to buy, so the buying subsides.
No rational person should buy a stock that’s up $4 in a few minutes with no news. Especially when it couldn’t hold its gains in the previous days.
ASLN chart: November 29, 2019, 1-minute candlestick, holiday trading
— courtesy of StocksToTrade.com
The Bottom Line
Holiday trading isn’t tied to any stock, hot sector, or news.
It can be extremely volatile, especially on the shorter trading days. And that can create a lot of opportunities. Be prepared to take advantage of the big moves.
Holiday trading can be a great thing for longs. But if you’re wrong on a trade, remember my number one rule and cut losses quickly. Especially on stocks that don’t hold their gains.
Be very careful with any short positions…
Actually, I don’t recommend you short sell at all if you’re a new trader. But if you must, keep your positions small.
If you just started trading recently, rather than gambling in the markets this holiday season, use your downtime to invest in your education. Study, study, study!
Editor, Penny Stock Millionaires