Trying To Trade These Waves

My recent journey trading the multitude of over-hyped short squeezes

Well, I did it. I gave into the hysteria rocking the market and started looking for lottery tickets. I strayed from my normal, somewhat conservative process and traded like a 22 year old again.

It’s easy to get caught up in things when you listen to the noise and all the hype. I always preach to put on ear muffs and ignore it, but over the last week I decided to try and ride the waves.

Guess what… it’s been awesome!

I’ve seen some insane moves over my career. I had a front row seat to the explosion in tech and fiber optic stocks as the internet came to life in the late 90’s. Remember such classic names like Nortel, Lucent, Iomega, AOL, Digital Equipment, and Compaq? The volume surges and meteoric rises were epic. Sadly, so were the collapses. In hindsight, this move seemed faster than it really was. The reality was it happened over months.

Today we are seeing similar moves, but at the speed of light. Instead of Yahoo! chat rooms or a select few “market gurus’ moving things, it’s Discord chats, Reddit posts and aggressive, organized Robinhood traders with an agenda.

By now you’ve all heard about GameStop. I blogged about it a few weeks back and since then the stock has continued to skyrocket. It’s gone from $42 to levels above $300 coming into today. It’s become the poster child for what’s going on in the market, but it doesn’t stop there. There are tasty waves to ride everywhere.

So before I went surfing, I decided to listen to those that already had been out in these waters. I joined the Discord for real time market conversation. I monitored Twitter and Reddit, put on CNBC and searched for what stocks were the most shorted. Then I discovered this gem on Twitter thanks to my friend Dan Russo. This list was the Holy Grail.

Dan Russo, CMT @DanRusso_CMT

Since hunting the shorts seems to be the sport of the moment, here is a list of highly shorted names sorted by their rating in our model @chaikinanalytic.

Most of the chatter was focused on the big wave - GameStop. Call me crazy, but I refused to ride that monster.

I dipped my toe in the water on Bed, Bath and Beyond late Friday. It was another heavily shorted name and was moving. I got burned quickly. I bought 200 shares at $30 and within a minute I was stopped out for a loss down $1.50. Might as well light my money on fire, but I didn't give up. I bought 100 more shares at the end of the day and decided to let it ride over the weekend. The talk was that this was just the beginning of the rally - the talk was right.

Come Monday all those shorted names were looking higher. The stories of what was happening to these stocks went viral and new players came to check out the action. While most of the attention was on GameStop, I was looking for other plays.

I took a new position at the opening in AMC. I liked the news in the stock, it was on the heavily shorted list, the chart showed it had a lot to reverse, the CEO agreed to come on CNBC later in the day (BULLISH) and it was gaining momentum in the chat. I’m in.

Now I focused back to $BBBY. It jumped $5 on the open and started to run. I had a trailing stop order set, but the stock was now up $10. I cancelled the stop and took my $10 gain. This was a very good start to the day.

OK.. what else is moving? Carvana!

The stock was on the short list. It was gunning higher and based on its chart I thought it could make a run to new highs. So I jumped in. It ran a quick buck and then I left the room for a phone call. HUGE MISTAKE. I didn't put in a stop loss to protect myself and the stock took a vicious turn south. By time I got back to the trade a few minutes later it was down $8 from my purchase price. I gave back all my early gains.

Would that deter me? Heck, no. I was watching pockets of stocks lift off all around me, it’s time to keep looking.

I bought and sold a few names for a quick scalp.

$FUBO, $FIZZ, $LAZR - All momentum plays

Now on to the next…

Tootsie Roll!

Worst Halloween candy ever next to Necco Wafers, but an historic company nonetheless. Little known fact - it’s been listed on the NYSE for almost 100 years. Never in my wildest dreams did I think I’d ever trade $TR. Yet, here it was being talked about on the Discord and social media.

I see it’s already up 10%, but it just broke above it’s key 200 day moving average. BULLISH - I’m in. Within 40 minutes the stock climbed another dollar and I was out. I just made a quick buck in Tootsie Roll. How many people can ever make that claim? It’s rallied 38% in three days! That’s a multi year move for this stock. Logic and fundamentals be damned.

This craziness was just Monday. The noise got louder on Tuesday and continued well into the after hours. I scaled back my exposure and will try to get back to more rationalized and technical trades. I still hold one YOLO position in $AMC and will try to let that run. Worst case at this point is I get stopped out and lock in a small gain.

I thoroughly enjoyed my short ride on the waves, but I’m not looking to be the whale riding a tsunami. Some may hit this big, it won’t be me and I’m ok with it.

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At the end of Tuesday, I joined a new discussion. This was on Clubhouse. I just stumbled across the platform and was amazed at the great dialogue it enabled. It was informative, civil and eye-opening - worthy of its own blog post.

My friends Stefan Scheplick and Pierce Crosby of Trading View hosted a conversation about recent market events. As we chatted the amount of people joining in the conversation grew dramatically. We heard from various sides of the recent trading activity - novice traders, Reddit/WallStBets users, a hedge fund manager, professional traders and financial advisors. There were two key takeaways that left me concerned.

First, the action we are seeing is looked upon by many as a revolution where the common person can take out the Wall St. elite. A modern day Robinhood story. They are organized and determined to do so and aren’t done yet.

Then there are the novice traders. One person described putting his $30,000 savings into GameStop. He bought it at $110 and within hours it went down to $69. He said he planned on holding for a year if it didn’t work out. Thankfully he didn't have to wait. When we told him it was trading over $200 in the after hours he said he was off to take profits. You could hear the elation. I was relieved and excited for him.

He got lucky. Not everyone will.

There were other stories about quick gains and even quicker losses. The conversation then turned to how will it end. That’s the million dollar question. We’ve seen many versions of this story over time and they never end well. There will always be someone on the wrong side of the trade. The question is who and when.

So be smart. Take what you can and move on. Don’t go chasing every big wave. If you do, to quote the great Johnny Utah - “Vaya con Dios”.