Thursday thought on $AMRN, $DMRC, $AKAO, $ONCY, $BIOC, $ARTH & the “Short” story

Today was a resting day as I’d predicted yesterday.  The candlestick bar was a spinning top. Giving the strong momentum from yesterday, I give the market a 1% edge on moving higher tomorrow.

SPY_Daily

Today close is still near the middle of the symmetrical triangle.  I’m sure we will know the clear direction by next week.

$AKAO traded like a boomerang from yesterday.

AKAO_daily

It reminded me of a story I read a long time ago.  Let’s me retell the story for you as best as I could.  In the little perfect world, there were a steady number of shareholders owning a particular stock.  These shareholders were satisfied with their holdings.  The price was trading at a steady $100.  Whenever someone needed to sell some shares to get cash, he/she could always find a friend or relatives to take the shares off his/her hand so the price would always be at $100.  As far as this group of investors were concerned, $100 was a fair value.

Then a stranger came into town.  He saw this particular stock as thinly traded and there were layers of small bids below $100 that go all the way to $30.  After pondering on the multiple small bids below, he deduced that he could keep hitting those small bids and walked the price down to $30.  As he started his shorting campaign by hitting the bids, he was delighted and surprised that there were no resistance to his shorting effort.  After a few days, he hit the last bid and the price of the stock was trading at $30.

“Hooray!  I’m rich!” exclaimed the stranger to his wife.

“Really?  Good, can you cash out and buy me a car?”

“Sure, honey!”

So the stranger was ready to cash out the next day.  The morning was sunny and the stranger was smiling as he walked to the broker house.

However, when he started to look for sellers to cover his short, he was shocked to find that the minimum ask for the stock was $100 and the number of shares offered at that price was only 5% of his total short volume.  He also realized that if he was to cover his entire position, he would have to hit the asks all the way to $200!  Little did he know, there were virtually no seller for the stock under $100 due to the belief, loyalty, and conviction of the existing shareholders.  In fact, he was the only seller for shares less than $100.  Those buyers who bought for less than $100 thought fortune had blessed them.

The moral of the story.  If the company fundamental is solid, the only way the short sellers can lock in gain is to “scare” the wit out of the nervous holders (aka weak hands) so that they would unload the shares for the short-sellers to cover.  But if there are no weak hands, the short sellers cannot cover.  So what do they do?  They will try to keep pushing the stock down until it breaks someone pain threshold.  Unfortunately, this tactic works from time to time.  Currently, I believe $BIOC is suffering the same fate from the short-sellers tactic.  But I’m not worried, I’m holding until catalyst appears to cause an ultimate short-squeeze.

BIOC_daily

See how price kept going down after the strong rally up on Aug 5th?  I bet there were a lot of short-sellers taking the price down on that day.  Now, they are looking for weak hands to cover.

$AMRN and $ONCY were neutral for the day while $DRMC and $ARTH bounced some so I’m not going to pull up charts.

Thanks to $AKAO boomerang come-back, my port gained back 1.8% for the day.  YTD losses is now at 13.1%.

Current holdings:

Main port: AMRN, DMRC, AKAO, ONCY, BIOC and 5.2% cash.  Trading port: ARTH (up 15%)

My 2 cents.



Categories: Daily trading Journal, Trading philosophies and thoughts

Tags: , , , , , ,

2 replies

Trackbacks

  1. Weekly thought on $AMRN, $DMRC, $AKAO, $ONCY, $BIOC, $ARTH | Trading my two cents
  2. Monday thought on $AMRN, $DMRC, $AKAO, $ONCY, $BIOC, $ARTH | Trading my two cents

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