It's Happening Again...

What's up everyone? All right, in
today's episode I'm going to break down
my trades from the morning. We had a
couple different stocks that put in
moves today, but nothing was
exceptional. This has been a relatively
slow week, and that's not uncommon at
the end of August going into September
that things are a little slow. It's kind
of the last week of summer for a lot of
people, the Labor Day holiday, and by
the way, we've got a long weekend here.
The markets are closed on Monday for
Labor Day. So, for those of you guys who
are international, you can sleep in and
relax or whatever on Monday because
markets are closed. But this weekend,
the long weekend, marks the end of
summer traditionally. So, we have, you
know, the last week of August into
September, a lot of people are taking
that last summer trip. I'm doing the
same. I'm in the the Sprinter traveling
trading station, etc. You know, camping
with my boys up in Canada. So, we're
enjoying we're enjoying it. And then
next week, um a lot of folks go back to
school. And uh this past week some folks
already went back to school. Some
college students have gone back. And all
of that has created a little bit of a
transition in the market. You know,
these life transitions do ripple down
into the market. You know, there
obviously a lot of college students that
were trading over the summer, they're
some of them are going to be gone for a
while as they go back to school. I was a
young uh trader at one point who was
sort of in that uh school routine, so
like, you know, I get it. Things get
busy, parents bringing their kids to
school, you know, all of that. It
creates a little bit of a change in the
market. Now, typically, the last 3
months of the year, October, November,
December, are strong. And typically the
first 3 months of the year, January,
February, March, are strong. And it's
kind of the middle of the year between
April and, you know, September that are
a little cooler.
That's a generalization because there's
been a lot of exceptions to that. In
fact, my best month ever was in June.
Last year we had a really good uh month
of September as I recall.
Uh
August I think was pretty good as well.
So, you know, there's no true guarantee
that a month will be cold or that a
month will be hot. The seasons have some
factor, but then there are just the
market cycles that exist regardless of
the time of the year. And, you know,
we've been in a cycle through the summer
that was really, really hot, but clearly
cooled off towards the end of August.
And, um I didn't take my foot off the
gas probably as quickly as I should
have. We'll talk about that um in a on
another day, but
uh in any case, this morning I expected
things to be relatively slow being the
Friday before a long weekend.
You know, it's not the time that most
companies are going to put out a big
catalyst.
If anything, they put out bad news and
hope people, you know, have such a great
weekend that they totally forget about
it. And by Tuesday, you know, the
the bad news has been forgotten.
So, we're more likely to see bad news
come out on a Thursday or Friday before
a long weekend, not good news. Uh and so
that stayed true today. Our leading
gappers IMRN, it's up 68%. It's got 68
million shares of volume on a 7.6
million share float, and this thing is
thickly traded, slow as molasses.
There's just not much to do with it. I
didn't take any trades on it.
Second leading gapper right now is up
only 36%,
and this one just started squeezing at
the open. 11 million share float, no
trades on that. OFAL, third leading
gapper. Well, this one's at 90 cents,
it's too cheap for me. It's also got 65
million shares of volume on a 2 million
share float, really high float rotation,
but it's not really doing all that much.
CDTG, another Chinese stock popping up
at the open, no trades on that for me.
Although, that's a nice squeeze, I don't
know how much more you're going to get
out of it.
ATER, 14 million share float, also too
cheap. SGRX, this one's got an 800,000
share float. It has this big pop here at
like 4:00 in the morning from 260 up to
7,
and gives it all back. And we've been
seeing a lot of those kind of moves,
which is really frustrating and really
tough.
A-CAN is a stock that I ended up
trading. As of right now, it's only up
16%. However, when I took my trade on
it, it was up 50%, which made it our
second leading gapper behind IMRN.
So, A-CAN, how well does it meet my five
pillars of stock selection? Number one,
we'll talk about how much was it up on
the day? It was already up 50%, so that
was great.
What about the relative volume? The
relative volume is 30 times above
average. That's good. I have a minimum
of 5x. This is 30x. Great. What about
the float? The float's 400,000 shares.
It's a very low float stock. This is
what we like to see. This is the type of
stock that has the potential to kind of
break the cycle of these stocks
reversing, because a low float stock
like this that gets going is the type
that can make a really big move. So, the
price is good, the relative volume's
good, the float is good. It's up at
least Oh, the price, yeah, between 2 and
20. It Uh and then number four or well,
flip I flipped a couple, but uh number
one, we've got the price
between 2 and 20. Number two, five times
relative volume. Number three, it's
already up at least 10%. This was up 50%
when I traded it. Number four, we've got
the float. Number five is a news
catalyst. Now, interestingly, this put
out um a catalyst here at 9:05 a.m., but
there was no catalyst prior to that. So,
this was trading up in after hours
without a news catalyst.
Uh you know, I'm not totally shocking.
We've been seeing quite a bit of that
recently as well.
So, as it um
as we were kind of going through the
morning, we had this initial pop here at
5:55, then it sells off, and then it
starts to curl right here through VWAP.
And at first, I wasn't really sure. I
kind of said, you know, A-CAN, I'm I'm
not totally sure. And then, one of our
members commented that it actually has
high short interest. I went and I
double-checked that, and I confirmed
that they were correct. The short
interest, according to Ortex, is 40%.
And so, let me just move this over here
and I'll pull it up for you. So Ortex is
um a platform that I started using
during the GameStop short squeeze just
to take a
a quick check and measure on real-time
short interest or as close to real-time
as we currently can get. Uh most data
providers for short interest are giving
you a 2-week delay which is only
moderately helpful.
Uh this is much more uh current. So
showing 40% short interest which is
significant, utilization is at um
19.95%.
That that's the only thing that's a
little bit tough is that there's still
more shares available to borrow and
that's confusing because if you have 40%
short interest then you should only I
you should have
uh let's see. So 40% has been borrowed
so 60% would be I guess technically the
remaining short interest
uh potential. potential and so this
showing that only 20% is being used uh
doesn't actually add up when you have a
float uh as low as you've got and a
short interest as high as you've got. So
40% short interest means that over
200,000 shares are being held short on
the stock that has a 400,000 share
float.
So you know clearly
um
if that if that 200,000 shares
represented only
uh 19 or 20% of the total shares
available to borrow then there's 2
million shares available to borrow
um or no sorry, a million shares
available to borrow but the float's not
that high. So now this gets into this
question of naked short selling that we
discussed in uh my other uh recent
upload. I'll put a link to it at the end
of today's episode because I think it's
definitely relevant. Nonetheless, the
short interest is reported 40%, the cost
of borrows up 340% so it's elevated.
And so as I saw it starting to squeeze
up initially it goes up to 480 and I
think well, that's a double top. So I'm
not interested in that. It pulls back
and when it breaks 480 right here and as
it comes up to this level I start adding
adding adding adding and I'm adding all
the way into this candle and now I'm
thinking okay, we might have a short
squeeze on our hands. Let's see what
this thing wants to do. So it ends up
squeezing up to a high of 609.
And then it softens back down.
It comes back down. It resets all the
way back down to about $5. Now that's
still holding above the previous
resistance of 480 but usually when you
take a stair step up you want to see it
holding higher levels not doing a step
up and then coming right back down to
that same level because then that starts
to look like a head and shoulders
pattern. So right here as it pulled back
I was thinking maybe this is an inverted
head and shoulders pattern and we could
get a curl back up to the double top
which is literally what we had before.
We had a double top right here and then
we ended up coming back up to it. And
then we actually pushed higher. So I
thought if we can come back to the
double top then we could push higher.
This could be our wild card stock for
Friday. This could be the one stock that
gives us a really clean move.
And you can see that's not what happened
which is discouraging.
I I guess in hindsight I really
shouldn't be surprised.
So I traded this.
I had some pretty big unrealized profit
and I gave a lot of that back
holding too long and adding as it was
going lower.
You know, I took the approach today of
basically stepping up to the plate with
one big swing and I wish that I had had
the presence of mind to not really try
so hard. Because I took a lot of risk
and the reward doesn't actually justify
the risk that I took. And this is always
tricky because you could have a day
where you could say, "Well, jeez, you
know, $27,813.61
is is great." And while that's great, if
you risk, you know, 100 grand to make 20
grand, then the risk reward's not very
good. And I took big size on this. I was
looking for this big move through 650 up
to 700 and I thought it would continue
higher and we didn't end up getting
that. So, my thesis of what I thought
was going to happen did not pan out. And
again, in hindsight, given that it's a
Friday before the long weekend,
I was thinking in the moment, well, this
could be
a wild card Friday, which we do have. A
day you don't expect to get much and
then you actually have something that
makes a really big move because it's
just sort of that perfect combination.
And I felt like this kind of lined up in
that way.
Uh but if I was going to be, you know,
with the benefit of hindsight, uh more
critical of that thesis, I could have
argued that, "Well, you've got these
previous days that were higher volume
but red." Now, today's a higher volume
day than any of these,
but, you know, nonetheless, you do have
some higher volume red days.
Um
you know, you've got a stock that
um does have a history of doing
offerings and we we know that, but many
of these stocks do as well, so that, you
know, by itself it shouldn't be that,
you know,
the only um
thing that would stop me from doing the
trade, the the risk that they could do
an offering cuz these are common. Um I
think ultimately what we have here,
unfortunately, is another case of naked
short selling. I think it's not
plausible that you could have this
amount of selling on a stock with a
477,000 share float and supposedly
already 40% short interest.
It just doesn't make sense to me how
there could be that many shares
available to sell.
Unless the company was selling shares
today, which is a possibility.
Um,
you know, it's it's not impossible that
that was the case, but
you know, it's
I it it just I just find it to be a
little bit suspicious. And you know,
this is the challenge that we've been in
um in this market right now where we've
been seeing these stocks that, you know,
have a decent setup. They look like they
could go. You know, they don't have any
warrants right around this uh strike
price of the current trading price. You
know, there's no obvious level of
resistance. And then they just run into
a a massive wall of selling.
Someone said um that they checked and
their broker showed that they had
500,000 shares available to short.
Well, wait a second. The float's only
477,000.
And what we know, if you tune in to the
episode that I'll put a link to at the
end of this class on naked short
selling, when I sat down with the former
SEC attorney to talk about naked short
selling, what he said is that each of
these brokers use the same inventory
each morning as the potential number of
shares available to borrow. So, that one
broker said there's 500,000 shares
available to borrow.
But then there's 10 other brokers that
are doing the same thing. So, now 10
brokers are saying they each have
500,000 shares cuz they're using the
same inventory.
So, now you've got potentially inventory
of 5 million shares that traders are
shorting to the short side, potentially
in this in this case. And it could be
more. I mean, but you know, I mean,
there's probably like five or six big
brokers. So, you know, maybe it's more
like 3.5 million shares.
But on a stock that's got a sub 5
million 500,000 share float.
So, now naturally you're having a much
higher degree of selling.
And that's what we're seeing. And so,
this is where I kind of feel like, you
know, we're
I don't know. We're We're just We're
fighting against We're We're swimming
against a tide right now that's very
powerful and pulling us out as hard as
we swim. And it's because of the
artificial phantom shares that get sold
onto the market through naked
short-selling. So, what's the solution?
Well, there's a couple solutions. One is
to be and this is probably the biggest
one for me is to be more um conservative
on position sizing when the market is
cold assuming knowing that the shorts
have the upper hand because of this
naked short-selling scheme that's going
on, number one. And then number two,
additionally made worse by the sentiment
in the market being cooler. Once we get
another cycle of some, you know, big
momentum, there'll be FOMO and there'll
be fear and greed. Shorts will be scared
of getting buried, you know, longs will
be you know, afraid of missing the next
move. And then we'll start to see, you
know, things kind of go back to towards
what they were um in the earlier part of
the summer. But this is These are sort
of the two yin and yang ebb and flow of
the market. The The when the buyers are
in control, we see these big outsized
moves where we can capitalize really
well. When the sellers are in control,
we see even stocks that potentially have
great news ending up selling and going
lower. Stocks that shouldn't be able to
have this amount of selling end up, you
know, flushing. And it's just
you know, the way it is. And you know, I
guess thirdly or you know, third, you
could consider trading some of these to
the short side. But then your risk is
that you're participating, you know, is
sort of indirectly in this naked
short-selling scheme because a lot of
these brokers are all doing the same
things. So, you know, and and part of it
is because of an antiquated system of
actually tracking who owns what shares
at what time.
Um you know, at some point it'll
hopefully be
um updated to a more real-time
um inventory. But right now it's a start
of day inventory. And then once all
those shares have been borrowed, you
know, then then that gets into a
different situation. But if multiple
brokers are using the same beginning of
day inventory, then a can accounts at
each broker like basically you could
have uh an account with two of the big
brokers and you could short the same
shares at the same time with both
brokers. So if you had one account,
you could short all 500,000 shares with
broker one, then short all 500,000
shares with broker two, short all
500,000 shares with broker three.
So now you're short 1.5 million shares.
You could literally be short 1.5 million
shares on a stock with a 500,000 share
float
because of the way the brokers use the
beginning of the day inventory to
allocate how many shares they can give
to each client within their silo of that
firm.
And there are traders who are doing
that. And on a stock
that ends up going from $5 to $50, that
trader gets a margin call and their
account is gone. And you know, just like
people that, you know, go to the casino
and take a lot of risk and they make
crazy money crazy money and then
it runs out. That's what will always
happen with these naked short-selling
schemes cuz there's always a stock
sooner or later
that ends up going parabolic and
surprising everyone. And if you're
holding 1.5 million shares and now you
have to start buying it back and you're
fighting with everyone else to buy it,
you're going to end up getting
completely smoked. There was a lawsuit a
number of years ago of a short seller
that shorted like I think it was like
800,000 shares of one of these stocks
and
um
it ends up going up, you know, stock has
no news but it starts squeezing and
suddenly they're down, you know, $5 a
share, $10 a share. So they're down $8
million. Then the broker steps in and
starts covering their position because
they're like, "You're down an incredible
amount of money. We're you're going to
have a margin call. And so when the
broker goes in and starts pressing the
buy button, what happens? They they
press the buy button button on 300,000
shares, 400,000 shares, the stock
squeezes into a halt. Now it's halted up
cuz it was during regular market hours.
And then showing a big resumption,
they're still trying to cover. It
resumes, it goes in another halt. They
only cover a little bit more. It covers
more, they cover more, they cover more.
And the lawsuit is alleging the trader
said that the broker covered them
basically into this squeeze and multiple
halts up giving them like the worst
possible exit. And the broker argued
it's not their job to manage the trade
at that point. This guy had a margin
call. So we had to get out. And you
know, was that 800,000 share order, you
know, fueling the momentum? Um maybe it
was, but you know, what's the broker
going to do? Just hope it doesn't go to
100? So it ended up going to like 50 or
60 dollars a share and you know, tens of
millions of dollars were lost on that
one trade. And that broker is gone. So
or that not the broker, that trader is
gone.
So but there'll be a new trader that
comes and replaces him as they think
that they'll be able to do it
differently.
So there will always be traders with the
risk appetite to short these types of
stocks and to try to use the fact that
through multiple accounts they can short
it so heavily that it becomes
self-fulfilling and it actually breaks
the stock down. And that will work and
it'll work and it'll work until it
doesn't. And when it fails, it fails
epically. And that becomes the big short
squeeze that um you know, we as long
bias momentum traders love to trade.
And so right now, we got to kind of wait
it out. We got to trade much more
conservatively, trade on the sidelines,
try not to get smoked while these short
sellers are in control. Cuz right now
they're in control. So if you want to
learn more about naked short selling,
check out the episode linked right here.
And I'll remind you that our Labor Day
sale is currently underway at Warrior
Trading. So if you want a special
discount on your Warrior Starter or
Warrior Pro memberships, you can come
check that out. And as always, trading
is risky and my results are not typical.
So, please manage your risk and always
practice in a simulator before putting
real money on the line. And with that,
I'll be back at it bright and early on
Tuesday morning.