What makes a stock go BOOOOOOOOOOOOOOOOOOOOOOOOOOOM! vs just a pick that we trade. Looking back there are definately some characteristics that are common and can be applied for when we have opportunities at that homerun trade.
Price: Not just todays price but the context of it compared with the previous days, weeks, months. Often when looking at a stock coming out of range where you see a character change in the way price shows/action it can signal a trend change or a shift in expectations. If you can clear a key level of supply in a stock and it starts to show a change in character in the stock (larger candles, increased velocity etc) This can start potentially a multimonth run.
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Volume: Above average volume tells you there is an expansion in interest in the stock. Its not an absolute volume number that matters but a relative manner. I like to use a 50 day moving average on my volume study. So then what im looking for is an expansion of volume or expanding volume in a relative fashion. It doesnt matter if its 100,000 shares a day or 100 million. If a stock trades 100k a day and in the first hour of the trading day we see 200k shares traded then we potentially have something special cooking as we have 2x of its daily avg in volume and its come in the first hour of the day.
Look at FFN. We have traded this 5 different times since Decemeber for 10-80% gains each time. The clue that things were changing for it was the volume expansion. This signaled a shift in the stock that provided the fuel for a huge run. Now its 2.35 and everyone wants it!
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FLOAT:
(from investopedia)
Definition of ‘Float’
1. The total number of shares publicly owned and available for trading. The float is calculated by subtracting restricted shares from outstanding shares.
For example, a company may have 10 million outstanding shares, but only seven million are trading on the stock market. Therefore, this company’s float would be seven million.
Read more: http://www.investopedia.com/terms/f/float.asp#ixzz1mmuJLOd3
Why is this important? Supply and demand! When you have less supply with an increasing demand for shares this can cause a stock to go exponential.
Last year we bought JVA at 8.00. This stock after an slight earnings beat ran from 8 dollars to 30
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See how low that float is!! Now look at the Chart for JVA the first day of that breakout the volume is 5.5 million shares but the float is only 6 million! So every share available basically changed hands. So why does this make the stock go up….well think. Say you own 5000 shares of JVA and you know that they just had an earnings beat and see the price start spiking up. You own this stock at 7.00 but its at 9.50 and you see the buyers start coming in. Well if you planned on selling your stock at 9.50 and you know there are so many buyers stil coming in at 9.40 why would you want to sell it at 9.50 so then you hold your stock till someone raises the bid…and then raises the bid and then raises the bid to a level where someone is finally willing to give up there shares. When trading momentum stocks this is huge as that increase in demand just slightly can tip the balance and make a stock go exponential. Imagine on JVA between twitter, facebook, funds everyone that saw the earnings. 1000 of those people wanted to buy 1000 shares well thats 1milllion shares of 20% of the float that now needs or wants shares. This is when the booooom booom comes in.
Stocks with floats over 1billion tend to have choppy breakouts. They often will breakout and then retest. I usually will buy dips on stocks with big floats.
Stocks with floats under 100million often will breakout and never look back.
If you look at the run in NFLX these last couple years. Everyone knew that nflx was overvalued but when momentum took place after some earnings beats and then you couple that with a 50million float you get huge run.
THE SURPRISE: This can often be a pr or an earnings beat. Anything that was not expected…when these instances happen this can shift the expectation of the stock and start a whole new trend for a stock. This does not have to be a news driven event even a stock breaking out of long consolidation period can change the outlook on the stock as it has now brought in the trend traders. Often stocks that are dormant for months can be shaken out of that neutrality with this type of surprise and now all of the sudden you have a stage 2 uptrend.
This can come from a few different areas.
News
Pr
Earnings
Sector Strength/Sector news
This works as the stock has to be revalued. Look at stocks that we trade over and over the past 2 weeks like IPSU. IPSU was a dead stock for months upon months. Then bam when it had earnings that “surprised” it started a huge run. We traded that stock on earnings day, the next day on red/green, then later that same day for intraday breakout. WE took 10% gains on all those as that surprise brought in volume, momentum, and started a new trend.
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FFN: same thing. I added this at .55 cents on its first run selling it in the .8s for 50% plus gain. Then when the sector hit on fire I added this in the .9s and at .98 again selling in the 1.2s. Then we preceded to rebuy it at 1.28 and sold our last shares in the 2.3s for a near 100% gain. Once that shift comes in its boom boom time.
if you ever have any questions about trading hit me up kunal@bullson.ws
