$PCSA +175% on the Reverse Split Setup transcript

all right so in yesterday's lesson I talked about the beaten up bounce play where we have a chart that's been selling off for a long long time and then bounces off the low typically on news and I talked about how reverse splits can be an indicator that we're going to get one of those big bounces today we have a perfect example of this setup pcsa the stock is up 150% today and of course I traded it and made money on it and I told you yesterday this was the setup I would be looking for I knew that this was becoming the theme so let's look first at yesterday's chart just to get a refresher on it and I think this will help you better understand why I was looking for this setup again today Okay so evax yesterday goes up like 300% this was an incredible move you see on the chart here this s this s right here means that the stock recently did a reverse well it it recently did a split and then if we look at it we can see if it was a traditional split or reverse split and this was a reverse split the stock ends up going from a low of $3 a share all the way up to nearly $14 yesterday that is a huge move that's what we love to see so because we had just seen that move yesterday and by the way the float on this stock about 3.37 million shares the volume yesterday 32 million shares you know it this met all of my criteria for being worth trading so let's look at those criteria real quick all right so number one the price should start under $10 it's okay if it squeezes up through 10 but almost always these perfect setups start under 10 and the reason that's important is because when you have a stock that's sold from you know 20 or $30 a share all the way down to$ one1 or2 when you get that news and you get a bounce it easily can put the stock up 50% 100% 200% on the day and the bigger the percentage gain the more interested Traders become in trading the stock it's kind of a funny thing like if the stock opens at $8 a share and goes up to 880 it's only up 10% you know that's not really enough for it to really get people's attention so the stocks usually have to open fairly low well under $10 a share preferably in the under $5 a share range and then start squeezing up on that news and that's going to put them up 50 75% 100% on the day which is going to make the stock usually the leading percentage gainer in the entire market and that's exactly what pcsa is today so I'm using scan right here and this is actually showing me PCS is at the very top of it up currently 147% and this is giving me some more info about it the price the amount of volume it's traded today 38 million shares the float the number of shares available to trade the relative volume now you guys probably know maybe not but from other lessons I've taught that I look for a relative volume of at least five five times this one is 28 times higher relative volume is the measurement of today's volume relative to the average volume the stock trades so it's trading on 200 times average volume which is incredible the float I always on these I prefer a float of under 5 million shares and the reason is that is more likely to create this big imbalance between supply and demand but let's look um now we've looked just briefly at yesterday's chart on Eva so chart that made a big move so today when I saw pcsa first hitting my scanners the first thing I did I looked well the first thing is I see that when it hits my scanner and this is way way back earlier I'll see if I can scroll all the way back to it when it first hit my scanner one of the first things I noticed was that the float was less than a million shares so a super super low float okay typically low float stocks like that they have the potential to do some crazy things they can make some really big moves so I was already like all right I got to take a quick look at this stock so I pull it up I saw that there was news that had come out at uh 8:30 a.m. and I look at the daily chart and I was like oh here we go as soon as I saw this daily chart I was like game on this is going to be the stock I'm trading today recent reverse split check beaten up chart check check the stock hit a low of $2 yesterday it closed at about $2 yesterday so this you know this is a really big move and this is a big deal for this company for to have this news come out and then this bounce so my bias on it naturally was to trade to the long side and I did um and I'll I'll show you my trades and how much I made on it in just a moment um but basically on this one we got a couple different moves uh we initially get this first pop right here which I did trade so it pops up hits my scanner and I'm jumping in it immediately I'm like okay this is game time I'm interested then it sells off and I was like H you know I don't know it's kind of interesting sold it did sell off a little bit more than I thought it would typically for me a perfect pattern does not retrace the entire move right so this this retrace well over 50% of the move if 50% is kind of like right there it retraced over 50% of the move what I typically like to see on this pattern and I'll draw it out for you I like to see the initial move up like this and then I'm okay with a pullback look a pullback is great A pullback helps me uh establish lower risk so a little bit of a pullback is all right two or three candles and then I want to see the volume coming back in and whether it goes through back to the highs in that one candle or it goes sideways a little bit before creeping up that's fine but I don't usually want to see it retrace more than 50% of the move so this is my 50% line right it's not hard to visualize when you have this pattern and then all of a sudden you know it drops like that right when you get that kind of big pullback it's like yep all right this chart is broken you know this doesn't look good so initially when I saw pcsa pop up and then put in that red candle right here the falling red candle I was like nah I don't know about this you know this is this is not exactly what I like to see so I only made a couple hundred dollars on the first trade on it it pulls back it drops back down and then it rips right back up and this is where I was like okay now we've got something to work with so what level am I interested in a breakthrough high of day all right so a breakthrough high of day here this is a little bit of an aggressive trade to take a long right through the highs but when I do that usually I set an arbitr stop of about 15 to 20 cents just that if it rejects I just get right back out in this case it ends up breaking through the highs of 260 270 and it goes up to$ 290 to $3 a little pullback then it goes up to 310 315 and now it's starting to pull away but right up here at 350 what did we notice there was a big seller and in this case you know this is I can kind of draw this out for you this was interesting to me because we come up to this level and we're right up at 350 here and it sort of pulls back it sort of dips down again and it's kind of back up right on the 10-second chart so right here is 350 now we know that most stocks will trade with what with pretty well you know they they respect levels of psychological support and resistance so 350 $4 that's going to be the next one five 450 five50 Cent half doll marks half doll whole dollar marks so right here on the level two we've got the bid and we've got the offer the ask and it was 350 on the ask right here and then you know 3 oops 348 whatever on the bid and what was interesting was we were seeing lots of orders going through but this seller was not budging so what that told me was that there was we call it an iceberg a giant sell order basically right here and we only were able to see the very beginning of it like a 100 shares or a thousand but every time time someone was buying here they were accumulating more shares from this big seller just this person was unloading shares I think at least 100,000 maybe more just selling selling selling selling selling and so what ended up happening was it tried several times to break through uh 350 right here on the one minute chart Taps it Taps it Taps it and finally it busts through it comes up to 370 and then guess what there's another big seller up there another big seller so now I'm starting to think what is going on with this stock why are we seeing this many big sellers so now let's talk about sort of the full story of these reverse splits and and why they happen and sort of what the end game is all right so these companies small cap companies will IPO onto the market and let's just say they IPO at $10 a share what often happens is you know the IPO there's a little bit of hype around it it goes a little bit higher but then it starts to pull back and there's a lockout per period where insiders can't sell so employees of the company who are given stock options stuff like that they can't sell for at least 90 days in most cases and then that 90-day window you know ends and and now they can start selling some of their shares and cashing out so we usually see the IPO maybe a little bit of hype and then for most of these they start to kind of trickle down they start to sell off a bit and then after a period of time they sort of do one or two things they either just continue going lower or the company has good earnings you know they're continuing to get some High people are excited about it and it kind of rallies back up that was the case with like Facebook and Twitter they IPO they sell off a bit and then they rally back up as investors are jumping in you know who believe in the company but for a lot of these smaller cap companies that's not really the story they're they're no name companies so they're publicly traded and this gives insiders the opportunity to kind of cash out all right so they cash out and the stock starts going lower and lower and lower and lower now there's a problem with that okay so the problem is once a stock breaks a certain price and we'll draw it right here they are no longer in compliance with the exchanges all right so the minimum price to be listed on the New York Stock Exchange in NASDAQ is $1 a share $1 a share now you'll say Ross wait a second I see stocks all the time that are you know 30 cents 40 cents right well they're not technically in compliance when they're below a dollar but they have a period of time to regain $1 a share and if they can do it then that's fine but if they can't they risk getting Dlisted from the entire exchange and pushed onto the OTC markets companies don't want that but there's a simple solution they can do a reverse split and by doing a reverse split overnight their stock can go from 10 cents to $2 a share in fact that's exactly what happened with pcsa so pcsa we we show the low was $2 a share here um but in fact you look at the split and it was a 20 to1 split so if it was 10:1 then the stock previously was at 10 uh was at 20 cents but it was 20 to1 so stock was previously at 10 cents a share okay so it had come all the way down to 10 cents a share and then they do a uh 20 to one split and the next day the stock opens at $2 a share so suddenly that's gone and it's $2 a share just like that now the funny thing is it makes it look like it ipoed here not at 10 but 10 time 20 so it actually makes it look like it ipoed at $200 a share way way way up so the whole chart gets kind of backed up and moved up like this which is why sometimes we'll have these uh charts where you look at it and you're like whoa wait a second so you're telling me at one point this stock was priced at like you know $190,000 a share but no it's just because you have to adjust it because of the reverse splits so this company's only done one reverse split but as a result it makes it look like it had an all-time high of $700 a share which it obviously didn't okay so uh it was it's 12th of that that's the accurate number all right so anyways um so we could zoom back in here so we'll get zoomed back in here so this has a reverse split it sells off and it sells off then it has a reverse split so now the stock is at $2 a share which means it's in compliance with the listing requirements but let's not forget the float so the float changes as a result result of the stock split so if the float was let's just say 20 million shares here you divide by 20 now the float is 1 million shares okay so this is kind of like where things get a little wild so now with a 1 million share float all of a sudden the company puts out news and today this has a float of less than 1 million shares it's 869 th000 shares and it has 43 million shares of volume right now it actually just made a new High um but it looks like it flushed back down kind of choppy here which is why I was like I don't want to overstate my welcome on it I want to take my profit and get out so that little move right there that's choppy uh and it's pretty ugly on the 5 minute but nonetheless so this has 43 million shares of volume but only has 800,000 share flow so you might say Ross I don't get that how can there only be 800,000 shares available to trade but there's 40 million shares of volume well what ends up happening is these Shares are just passing like hot potato they're just exchanging so yes there are some people who buy this stock and are holding it and they're not trading it so there Shares are basically locked up and then there are people who are buying actively buying actively selling and that's called float rotation so it's actively buying actively selling and the fact is if everyone who was in this stock at $2 a share wanted to sell today they all could have sold they all could have sold times 10 right times 20 times 30 because of how much volume we have so that's important it basically means that anyone that wanted to get out could have gotten out so the price is still at this level but where are those hidden sellers coming from right we saw as it started to come back up these big hidden sellers at 550 then at 570 or sorry 350 and then at 370 and we we saw them as it continued to go higher so here's the second part of the story of these reverse splits the now the first part is is probably what's most exciting and relevant and interesting there's an incredible opportunity to trade these and I'm just trading the standard patterns that I trade on any other day I'm using my macd I'm using the vwap my moving averages I'm trading familiar Candlestick patterns that I talk about in you know a million of my uh video lessons so if you're interested in the specific patterns you should check out one of those um video lessons what I'm really talking about here is the daily setup that when you have a reverse split and a beaten up chart that's a really strong daily setup that can give way to these big moves and then the way I find them just to sort of full circle on the the actual setup and and the strategy the way I find them is on these scanners that you see right here so these scanners are searching the market in real time for stocks that are moving now I'm not searching specifically for a stock that just had a reverse split the reason I found this was because at 8:30 a.m. the stock had news and it squeezed up 10% and what I do is I search the entire market for stocks that are up 10 more than 5% more than 10% in a very short period of time because if um you may not know this but but most stocks trade within a standard deviation of uh 4% so 4% up 4% down this is and that's zero on the day I mean that right there 90 99% of stocks in the market 99% are within this range of up or down 4% each day okay so I'm not interested in trading stocks that are up less than 4% or down less than 4% there's that's not not moving as an active Trader my job is to capitalize on volatility so I want to see things moving because when something is moving up 10 20 30 40 50% it's a lot easier for me to get in and get out and capture a sliver of that and that sliver can be 10% of profit when something's only going up three or 4% the sliver of that is like negligible it's nothing unless you're using a lot of Leverage but then that gets very risky because if it goes the wrong way and news comes out that's bad you could blow up your account okay so most stocks are within this range but I don't want to trade most stocks so my immediate filter is I want to trade something that's up at least 4% in the day and actually set it a step higher I say it should be at least 10% now I could look at stocks going down but I'm not a short seller and I don't like to profit when companies are declining I like to profit when companies are going up I think that's um I just think that's better so anyway so I only trade stocks that are going up so I set my threshold at at least 10% and by doing that you know what I've done I've gone from thousands and thousands and thousands of stocks I could possibly trade to right here well let's see how many stocks are up 10% today let's just take a look all right so on the scanner we've got uh 2 4 6 8 12 let's see 14 16 18 20 22 24 26 27 about 27 stocks okay now I kind of think of this as like a Google search I don't usually look down here at like page three of Google Search I tend to focus on the top of search just like everyone else and that's why the lower price stocks are better because when they start with the lower price and they start squeezing up they become the leading gapper and the leading gapper gets a lot of attention remember that retail Brokers want you to trade because you're the commodity the more you trade the more money they make so they're going to show you the leading gainers today they're going to show you the stocks that are moving and they're not going to show you something that's up like 8% it's on page four of Google they're going to show you the one that's up 136% that's moving fast right now all right so I search the first filter this scanner is just searching for stuff that's up 10% or more and then I have additional filters that are looking for the rate of change how much it's moved in the last few minutes uh there's some you know different thresholds that I'm very specific about and so pcsa fires off on my scanner right here at the very beginning and then from there I'm looking at the chart and I'm like okay it's reverse split Yep this is something I'm interested in okay so that's how I found uh this one today and that's kind of my workflow now what ends up happening with a lot of these companies is because they're not you know hyped up companies like a Facebook or a Twitter or something like that and this one's a pharmaceutical company a lot of these companies need to raise capital and they'll disclose that in uh their annual filings or quarterly filings and most of them have shelf registrations and ns3 this one has a initial registration new Securities they're selling shares to new investors they're doing that to raise money and they put all shareholders on notice that they're raising Capital by selling shares because it's important for you to know that the value of your shares is being diluted because they're selling more and more shares onto the market right so this is kind of the reality that we've got here is the stocks bottom out they start bouncing and then we start seeing secondary offerings phun is a really good example of this uh this one was a little bit cheaper um so I you know this one wasn't one that I traded it didn't actually have a reverse split either it just miraculously bounced from like 5 cents a share all the way up to 50 cents I can only imagine if they had done a reverse split on this and put it at five let's just think about that if they had done a reverse split and put this at $5 a share it this shows it would have gone up to $50 a share that's how big that move move was from 5 to 50 so from 5 cents to 50 cents so this could have been the one that went from $5 to 50 bucks but then the next day it goes all the way back down here it drops down why because the company announces an offering they sold more shares onto the market and they sold them at like 10 cents a share so they found an investor who was willing to buy you know a couple million shares or whatever I don't know maybe more I didn't check exactly what it was and they raised money they sold the shares and the stock price drops right oh my gosh they diluted the stock and they valued it at 10 cents a share for all those new shares they sold then it goes back up again and then they do it a second time they they sold they did a second secondary offering two of them back to back so you know retail investors who are not quick get caught kind of holding the bag on these and I I I wonder if we're going to see that on um pcsa I I think it's a good chance that we will we know that these companies most of them need to raise money they have these shelf registrations U they're ready to go and so it's very likely that we'll see it it's possible we won't uh but I think it's only a matter of time before we do so the fact is today because we had those big big sell orders out at 550 570 or 350 370 and and and going higher there were hundreds and hundreds and hundreds of thousands of shares being sold and so I began to ask myself I was thinking well who's selling these shares you know could it be a short seller sure it could be someone who's just a short seller who thinks the stock is going to go back to $2 a share but you know shorting three four 500,000 shares of stock you could lose millions of dollars and there's a story of a hedge fund with the lead Trader started shorting shares of one of these companies thinking it has no business being up he ended up accumulating an 800,000 share short position which is crazy and then the stock kept going higher so every every dollar it goes up he was down 800 ,000 bucks it goes up $10 he's down 10 million sorry $8 million all right so it did go up $10 a share and then it goes up so it started at like five and then it goes to10 to $15 a share it goes to 20 to 25 to 30 to 35 to $40 a share he's down like 1520 million on one trade and let's be honest what is the most he could have made on that trade $800,000 shares on a $5 stock right you know8 Time 5 I mean he could have made some money he could have made Millions but he lost a whole lot more than he could have ever made on that position negative risk reward ratio doesn't really make sense so could it have been a short seller someone who's just shorting shorting shorting maybe but they're already getting bent like they're down a lot right this thing just hit a high of nearly $6 a share so they're down hundreds of thousands maybe millions of dollars so I don't know I don't think so I think that's a reckless strategy I I sort of don't think it's likely okay so then if it's not a short seller who who else could it be it could be an Insider it could be someone who's been in for a long time who's been holding shares maybe who is affiliated with a company and is just selling when the stock is up and there's nothing wrong with that they can do that they they can take their profit so it could be an Insider selling uh that's possible or it could be the company itself is um selling shares on the market to do a direct offering that's possible um and and so you you wonder and you speculate and at the end of the day right now at this point I don't know what the answer is but what I do know without question is that there's a tremendous amount of Sellers and if there had not been hundreds of thousands of shares worth of sell orders I can only imagine what price this would have gone to I mean this could have gone to 105 $20 a share but there were a lot of sell orders holding it back so someone was selling a lot of shares onto the market and you know it's it's it holds back the stock but this is sort of part of that cycle so the typical cycle is IPO stock sells off reverse split news the stock pops up and then secondary offering shortly after the stock sells off again sells off sells off sells off they have to do another reverse split they bring it back up some news comes out another secondary offering and it's this cycle it's a downward spiral and the result is that you know we end up having these uh stock charts that just look insane because the stock keeps selling off more and more and more and more so you know so that's that's kind of the the big picture of this reverse split is that um it allows stocks to basically not go to zero they can just keep going lower and lower infinitely because the company can just keep doing splits um now it doesn't mean you could short it and make infinite profit because the number of shares you're holding will keep shrinking whenever they do the split so you would have to continue to add and add and add but nonetheless um it's a setup worth watching because when these do bottom out and bounce you can get these nice 50 100 200% bounces and that's enough in one day to lock up some profit so today I locked up $3,300 of profit on um pcsa unfortunately I went red on my first trade on sxtc and this was sort of a mistake because sxtc it is a similar chart in the sense that it's a beaten up chart and it's been selling off for a long time but it did not have the reverse split I mean it had one a while ago but I'd really prefer to see it uh one of my criteria for the reverse split is that I'd like to see it ideally within the last 14 days all right so you know this was a reverse split but it was quite a while ago anyway so it starts to bounce up this morning and um when I saw it hit my scanners I was like okay we've got something moving it's pulling away and I just got in way too high on it so I got in right here I I got in as it started squeezing up right here at um 270 I was like okay it's breaking over 250 I'm going to set my stop at 250 it then goes up to 285 I added more shares at 285 and then all of a sudden it drops here and I'm like oh I'm out I got to stop out so I went red on that and then um it came back up here for this second attempt and I did get back in and I made back some of my loss but I'm still read on the stock in in net so because I started the day in the red this was my first trade of the day I was a little bit defensive you know I was like well pcsa is moving up but I just you know lost money on sxtc so I got to be a little bit careful and when we saw you know first this pop and then the selloff you know I didn't like that because I don't like it retracing more than 50% and then it comes back up but then there's that big seller at 50 and it breaks but only by a little bit you know and then it again sellers right there so sellers it's I was just like I don't know you know this is tricky so this one because of all the sellers was not the easiest reverse split I've ever traded was it profitable yeah am I green today yes and I'm green on this stock yes and am I going to look for more setups like like this in the coming days absolutely because this seems to be the theme so recent reverse split bottom bound setup stocks been selling off for a long time ideally we're going to see the float is under 5 million shares we're going to see high relative volume we're going to see the news and the price is going to be under $10 when it begins you know sometimes we'll see a stock that does a reverse split and then the stock price is like you know $16 a share and now it's kind of a it's too expensive and for it to go up 100% in one day it's going to have to go up to $32 like it just doesn't make sense so I feel like the you know the companies kind of have gamed the system like they know you know the the the ratio of the split that they need to kind of get the perfect combination of float and price to give them that potential to become the leading stock on the day leading stock on the day with 46 million shares of volume the company can easily sell four five five million shares of they could easily sell five million shares today right five Time 5 25 $25 million they could raise $25 million today easy so you know this is an opportunity for that company and they'll take advantage of it I mean they usually do it's possible they won't this one might not but usually they will and that's the right thing to do for their shareholders now we as active Traders are not really considered the the shareholders they care about they're caring about the long-term shareholders and obviously you know the the big big people at the company who pretty much own the company so anyways I hope you found this episode interesting this lesson interesting I hope you hit the thumbs up I hope you're subscrib to the channel and I'll see you for the next episode real soon all right thanks as always for tuning in and I'll remind you my results are not typical trading is risky and so you should always take it slow and practice in simulator before you put real money on the line I'll see you back here tomorrow