A question I am frequently asked about-particularly these days- is “how do you exit a relatively illiquid stock?” One of the major criteria I seek in stocks is indeed the ability to get in and out easily. However, on occasion, I will trade one that I typically wouldn't for reasons such as a short squeeze being set-up (GPRE for instance on June 2 through its high of the day following a massive run-up in previous sessions). Or, maybe I think there will be a panic in something after, say, a huge run-up as everyone storms for the exits (ANPI as an example on May 29 after it began to reverse following a gigantic surge in its stock price on positive newsflow within the company). Thus, sometimes it can very well pay if you lead the stampede of emotion into or out of a stock you'd ordinarily not trade. So, let's discuss exiting- first in general and then delving into things more specifically. First, I take liquidity about 85%-90% of the time...I rarely bid/offer anything. When I want to get out, I get out. I mean, why should I try to add liquidity when time is of the essence to save 1/2 cent per share when it could cost me 10 cents per share by fine-tuning things? Typically, if I am right, I take half off at the first pause. If wrong, I just get out as carefully as possible as fast as possible. Let's diagram MAPP from May 29. I shorted 2,500 shares of it at 12.20 (at 10:54AM) at a new low of the day at that time after a gigantic shot higher in the stock. However, in a relatively illiquid situation as this (it has spreads of 12-15 cents at times where a CSCO trades with a one cent trade typically), I am well aware that nothing says that a MAPP couldn't have gone to 12.70 or 12.80. In my case, it broke to 12.10 fast (I expected a wholesale flush-out). Thus, what I did when it went to 12.10 rapidly and paused was to attempt to take half off at 12.14 the instant it ticked 12.11 bid because it showed the selling paunch wasn't as strong as I'd hoped as 12.10 refreshed on the bid. I tried taking off 1200, but only got 400 at 12.14 leaving me short 2,100 still. The second it went 12.20 bid (where I entered, where support had become resistance had become support anew and where I was now clearly mistaken as the stock was clearly not breaking down), I placed an order to cover 1300 (of my remaining 2100) at 12.24...I figured I'd take what I could up to 12.24 knowing it'd probably test support once more at 12.20 as it had run a lot very fast (12.20 to 12.10 to 12.22). But had I put the whole thing in at say 12.26, I could have yanked it up to 12.26 which may have forced it to 12.30 and take on a life of its own -with me still in some of it. I got filled at 12.22, 12.23, and 12.24 at 10:55:43AM (one minute after I entered). It went back to 12.21...but not 12.20. As it hung out and then ticked 12.22, I placed an order at 12.25 and got filled my last 800 at 10:56:11AM at 12.25. Within a couple of minutes, it went to about 12.35. Now, it is also important to realize that in general, one trade has nothing to do with another. Just because MAPP did not work initially did not mean that my thought process was wrong. I mean, if there was a refreshing bid at 12.20 and you lost four times in hitting that bid, that's different. But, in general, just because shorting at 12.20 did not work did not mean shorting at 12 (with stagnation and a declining market) would not work. Indeed, I re-shorted 2,000 shares of it at 12 and wound up covering it all between 11.40 and 11.75 meaning I turned my initial $100 loss in the thing to a near $700 gain the next time. The net- circling back to my point- when you want out, get out in liquid stocks. In more illiquid stocks, exit expeditiously and stealthily in these situations. You cannot panic out, yet you cannot hold on and hope for the best either. Hope may be a good thing as "Shawshank Redemption" taught us, but there is no room for hope in trading. There are countless other opportunities each day; I'd rather give up 3 or 4 cents, take my lump, and live to fight another day - or as is so often the case, another hour. If one is right 58% of the time, but keeps his/her losses contained as I did here the 42 of 100 times one will be wrong, one can truly maximize gains when right on the other 58% of the time and come out well ahead every month.
Markets overnight were down throughout the world with equities falling just shy of 1% in Tokyo and about 2/3% on average in Europe. The dollar is slightly stronger, gold slightly weaker, and bonds little changed. The only trigger has been the imminent danger of Japan Airlines failing, but it’s almost random at this point. Look for a very slow day- even slower than yesterday with volumes about like that of yesterday’s (anemic). There will likely be a very slight downside bias, but focus once again in the microcaps and relative strength plays for any potential trades.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
CBAK- closed near a high on rumors that Google’s Nexus One phone will use CBAK’s lithium polymer cell-based battery
GMCR- closed near a high in its continued amazing run-up
SPIR- closed near a high
KFRC- its Kforce Government Solutions subsidiary announced it is eligible to participate in new federal government business
LIWA- closed near a high
PDO- closed near a high
Bad-The following stocks have bad news and/or a weak technical pattern
VVUS- closed near a low despite submitting a new drug application yesterday following successful phase III trials for one of its lead developmental drugs
CGEN- closed near a low in a continued reversal
ATHX- closed near a low
TSRA- lost patent fight with Acer
RBCN- closed near low
Earnings:
none today
Good luck today.
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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