It's Happening Again... transcript

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.