Update: Here is my auto-tuned trade recap in mp3 format.
DDRX & CBOU nice breakouts. DDRX had a positive article in IBD while CBOU is up in sympathy. I bought and sold at a loss DDRX at 3pm EST today. CBOU I played earlier on the break above $9. CBOU has crappy volume but DDRX should have nice follow-through tomorrow. The ideal play on DDRX would have been to buy it on the huge breakout above $26.
VRMLQ had a nice breakout above $20 today and I made $1 per share on 200 shares. It is less predictable for tomorrow and the spread is horrid, so no play here.
If you are a momentum day-trader then you want to know which stocks are moving. One way to measure that is the average daily range, which is a measure of the average range (low to high) of a stock over a period of time. Here are a couple scans I use to get high ADR stocks. These scans can be once a week; the results do not change that much from day to day.
Stockfetcher scan for stocks with an increasing ADR
The following scan looks for stocks with an ADR over the past 10 days that is higher than the ADR over the past 30 days and where the ADR over the past 30 days is above 10% (a average range of $4.50 to $5.00 would be a 10% ADR). Running this scan on the date this post was published I found 18 stocks, including the following: TLR, ROIAK, MERX, CLWT, THLD, CXM, EMMS, CNOA, LPIH, RPRX, FSII, ASTC, ACLS, LEE, HILL, MNI, CIT-A, IGC.
show stocks where close is between 1 and 20
average volume(90) above 50000
average volume(10) above 500000
and average day range(30) is greater than 10 percent
and average day range(10) is greater than average day range(30)
sort column 5 descending
set{volchng, average day range(10)-average day range(30) }
set{adr30, average day range(30)}
set{C1A, volchng / adr30}
set{C2A, C1A * 100}
and add column C2A {volatilityChng%}
Stockfetcher scan for higher-priced stocks with high ADRs
The following scan scans for stocks with a price between $10 and $20 and an ADR over 10%. Currently no stocks meet the scan requirements, so I would suggest lowering the minimum ADR. Running this scan on the date this post was published, with a minimum ADR of 8%, I only find one stock: DRV.
show stocks where close is between 10 and 20
average volume(90) above 50000
average volume(10) above 500000
and average day range(30) is greater than 10 percent
sort column 5 descending
set{volchng, average day range(10)-average day range(30) }
set{adr30, average day range(30)}
set{C1A, volchng / adr30}
set{C2A, C1A * 100}
and add column C2A {volatilityChng%}
Disclosure: I am a subscriber to Stockfetcher.com and have no other relationship with it. I have a disclosure policy.
Just as I previewed in my watchlist last night, I shorted 5,000 shares of OPTT on red (I alerted this trade via Twitter too). I got whipsawed out and then chickened out after re-shorting. Tough loss.
Video trade recap plus my analysis of what I call an ‘engineered breakout’, when concentrated buying, whether by a single large trader or a trader with a following (such as Superman or the Lionmaster or others) causes a technical breakout after which momentum buyers further push up the stock. Best quote of the video: “This is the best damn trade recap video you will see … today.”
Due to overwhelming demand (most particularly from Tim Bohen aka tbohen), I will be borrowing an iPhone with the “I am T-Pain” app on it while in Vegas so I can auto-tune a trade recap or two. (See Autotune the News if you do not understand.) I have a volunteer who will lend his iPhone to the effort so no need to worry.
Doubling Stocks (along with a number of other stock promoters) pulled off one of the best pump & dumps of the year back in May by pumping UOMO Media Inc. (OTC: UOMO). The pump sent the stock from $0.35 to $1.00 in one day. I was too afraid to make money buying it (I actually bought it in the pre-market on the pump day but sold right after the open … a few minutes later it rose like a rocket), but I did make some money short selling it. All told, I made over $1,100 on it.
Of course, by being unethical losers, Michael Cohen and crew at Doubling Stocks made far more than that. They received only a measly $50,000 from a third party to pump the stock, but they bought 400,000 shares prior to the pump that they then sold into the pump. Tim Sykes had a good post on the pump where he copied the full disclaimer. A very conservative estimate of Doubling Stocks’ trading profit would be $140,000, if they bought at $0.35 and sold at $0.70. A more likely average buy price would be $0.25 as they probably bought over a week or two prior to the pump, with an average sell price right near the top of the pump at $0.90. If that was the case, then they made about $260,000.
Michael Cohen of Doubling stocks has been sending out emails about his forthcoming pump, which will come on October 30. Here is his description of his previous pump:
About 5 months ago, before
my last stock pick I said:
“If this stock doesn’t triple
within 48 hours I’ll RETIRE
as a stock picker”
What happened?
The stock rocketed from $0.35
to $1.06 in under 48 hours!
But this time he writes that the stock will take a lot longer to rise:
However, this time… I believe my
new pick will steadily climb to
its peak over a span of 14 to 21
days.
What does that mean? Of course, I cannot know for certain, but I bet that means that he is going to gradually sell his holdings into the pump to make sure that it rises slowly. Or, he could be getting paid a lot of money for the pump and whomever is paying him is planning on dumping a huge number of shares into the market, keeping the stock from rising much. If he gets paid enough money for this pump he won’t care if the stock goes up or not. He’ll be happy to screw his followers, because he can always build another pump and dump site. Such is what happened to StockPreacher last summer. No matter what, the risk of going long a pump such as this is high and I will likely not look to buy it. I will, however, look to short it aggressively, something I did not do last time.
I messed up an easy trade on ONCY today. Lesson: if a stock keeps trading only at the offer (ask) and not at the bid, and the bid keeps rising, it is probably going to continue to go up.
Here is a screenshot of the time and sales from right before I sold (I sold at 9:33:20). It actually was not just printing at the offer, unlike how I remembered, but it was at least balanced between bid and offer and the bid did not drop after hitting 3.26.
One of the keys to making money trading stocks is to learn certain ways in which people behave in illogical or emotional ways and then trade to take advantage of those people. It is even better to understand why people act in certain ways so that the trader can be certain that they won’t change. One example of this is the pump and dump: I know that people are always greedy and lazy, so some people will always be willing to buy into the hype of a pumped company. I can profit from this by buying well-pumped stocks and by shorting them when the pump is over.
One of the things I have found with stocks is that people put a lot of importance on round dollar marks, such as $1.00, $2.00, $5.00. So if a stock breaks a round number it will tend to run. People like to think with whole numbers partly because it is easier to do mental arithmetic using those numbers. This leads people to place many buy and sell orders right around round numbers. For a stock at $2.90, there may be twice as many sell orders between $2.99 and $3.01 as between $3.01 and $3.10. So if a stock can break through a round number (in either direction) it will tend to run a bit. While this does not work all the time, it does work more than 50% of the time, at least with momentum stocks priced under $10.
While it is easy to find inefficiencies in the market, it is possible for many of them (like the January effect) to be arbitraged away. Therefore, it is always nice to see evidence that a particular inefficiency has been known for some time and yet remains; this indicates it is less likely to go away. Here is what the great trader Jesse Livermore wrote about round numbers:
Many years ago I began to profit from the simplest of type of Pivot Points trades. Frequently I had observed that when a stock sold at 50, 100, 200 and even 300. a fast and straight movement almost invariably occurred after such points were passed.
Another psychological pivot point that I use to trade is green/red or red/green, when a stock breaks above or below its previous day’s close. While the difference of a couple cents is minuscule in real terms, there is a big psychological difference between a stock being up for the day and a stock being down for the day. This is related to the tendency of traders to prefer to take small profits but not take small losses. Even if the amount of money involved is tiny it is psychologically painful to take a loss but pleasurable to take a gain.
Today was a horrible day. Not because my loss was huge; rather, it was acceptable. It was horrible because I messed up what should have been an easy trade. I even messed up pronouncing “plethora” in the video. Despite following EMGE closely over the last twodays and seeing the exact same pattern play out a week ago in GVBP, I messed up the trade completely.
Now that the previous big pump & dump, Genova Biotherapeutics (GVBP) has been halted by the SEC, it is time for the next big pump. I present to you, ladies and gentleman, Emergent Health Corp (Pink: EMGE). The stock is up 120% in two days now on modest volume of 700,000 shares per day. Why? Because they have a magic potion that will “revolutionize the vitamin business.” This magic potion is some random chemical or chemicals that they will add to a multivitamin. What will it do? Who knows? The company’s explanation makes no sense:
The company plans to introduce an adjuvant formula that enhances existing vitamin products currently on the market to assist in the production of normal cells.
If this were a legitimate product and not snake oil, the company might point out that the Vita-Stim Adjuvant(TM) improves the body’s absorption of vitamins (something that would be quite helpful and potentially lucrative). Instead, the company had this to say:
Our Vita-Stem Adjuvant(TM) compound stands to revolutionize the whole vitamin industry, as breakthrough adult stem cell based discoveries are further studied and introduced, providing high potency, scientifically researched regenerative properties to existing vitamin brands. It is predicted that today’s vitamin products will eventually become obsolete.
Yes, my friends, this company is putting stem cells into vitamins! Either that or they just cobbled together a bunch of pseudo-scientific babble for their press release (that seems more likely to me). This is a short on weakness or a long on strength, although considering it has already had a couple up days I probably won’t try taking it long. (Check out the company’s financials [pdf]: they had $90,000 in revenues in the past 6 months yet have a $40 million market capitalization, per Pinksheets.com)
ILI – They had really sketchy positive drug-type news on a small study. I would short on red, long on green. I am not sure which way it will go so I probably won’t trade it.
FTBK – Still short-biased. I did not like its choppy action today, though. I traded it today for $200. See my writeup on it from yesterday.
To sell short, a trader first needs to borrow shares that will be sold short. For the most part, brokers will only lend shares if they have other customers who own the shares. While there is an inter-broker stock loan market, it is not very well developed (LocateStock.com is one company that provides such services to brokers; AQS is another). The method of borrowing shares differs at different brokers. For most normal discount brokers, you need to place a short order and then if no shares are available the broker will reject the order because there are no shares to borrow. Following are instructions for many different brokers on how to borrow shares to short and how to see which stocks are available to short.
Common Brokers
E*Trade – There is no way to determine which stocks are shortable. You must enter a short order and if it is rejected then that stock is not shortable at the present time. Shorting stocks priced below $1 per share is prohibited. Etrade has instituted a hard to borrow program that allows for the possibility of shorting hard to borrow stocks. You can read more and enroll here. If a stock is hard to borrow you will be quoted a borrow fee as an annual interest rate and once you accept that fee the order will be sent to the market.
Lightspeed Trading – Lightspeed generally sets up clients to clear through Penson, although they can clear through Goldman Sachs. They tell me that they also obtain borrows that they get from other sources as well. The Lightspeed trading platform will display a symbol if a stock is not readily available to short. According to Lightspeed, “We have a standing request with our clearing firms to locate or pre-borrow a certain quantity of every hard to borrow stock.” If a hard to borrow stock is in inventory through that standing request, it will be marked as available to short in the Lightspeed platform. If a stock is marked as hard to borrow in the trading platform, the user can send a request for the borrow through email or live chat. Lightspeed will then make an additional attempt to secure the requested shares for that specific user.
Scottrade – There is no way to determine which stocks are shortable. You must enter a short order and if it is rejected then that stock is not shortable at the present time. Scottrade generally has poor short stock availability. Shorting stocks below $5 per share is prohibited.
Centerpoint – At the bottom of the level 2 montage there are the letters “ETB”. If the stock is not easy to borrow then those letters are greyed out. In the image below they are in greyed out, meaning that CLNO is not easy to borrow/short. Stocks that are not easy to borrow may be located using the locate monitor in Sterling Trader Pro.
TD Ameritrade – There is no way to determine which stocks are shortable. You must enter a short order and if it is rejected then that stock is not shortable at the present time. TD Ameritrade generally has poor short stock availability (although sometimes they will have shares of hard-to-borrow stocks). Shorting non-marginable stocks (including all OTC stocks) is prohibited.
Tradestation – Tradestation primarily self-clears for stock trades. The Tradestation platform has a “Short Locate” function, which search for hard to borrow securities. About 20-30% of the times when IB does not offer shortable securities they can be found on Tradestation (this is according to a reader)). It takes around 30 seconds up to 15 minutes; usually under 2 minutes) to get the answer from a “locate request” – using their built-in platform locate tool. Tradestation does not allow short selling of OTC stocks or stocks under $2.50 per share.
Other random discount brokers – Most small discount brokers clear through Penson Financial (which has now changed its name to Apex Clearing), so the borrows would be the same, although the method for borrowing shares may be different. Noble Trading, Cobra Trading, and LowTrades.com all clear through Penson.
Recommended Broker
Interactive Brokers – I like to use the FTP text version of IB’s short stock list: Shortable Stocks FTP (when prompted for a password just hit enter or okay). The FTP link will show a large text file; use your browser’s search function to find a stock by name or ticker. An HTML version of the shortable stocks list is also available. Both show how many shares are available to short and what interest rate a trader must pay to borrow said shares. For example, the FTP link shows each stock on a line that looks like this: “AMEL|USD|Amerilithium Corp|73282418|US03077G1067|03077G106|-2.69|NA|NA|20000|”. The first entry is the ticker, the next the base currency, followed by name, two different identification numbers I’m not familiar with, the stock’s CUSIP, and then the indicative annual interest rate (positive numbers indicate a short sale rebate, in other words you get paid to hold the short position). The right-most entry is the number of shares available. The top line of the file indicates when the data were updated (ie, #BOF|2010.06.07|13:30:03) and the second line shows each column’s headers. So the line above indicates that as of 1:30pm EST on June 7, 2010 there were 20,000 AMEL to short at an annualized interest rate of 2.69%. The interest rate can change from day to day as the stock becomes more or less easily available to short.
If you log in to your account and go to “Tools > Short Stock Availability” you can see more detailed data on how many shares of a stock were available at different times. Interactive Brokers has detailed instructions on how to use this tool. I have also configured my Trader’s Workstation software to show the “Shortable” column. Below is a detailed video of how to do that. IB allows short selling stocks of any price (although short selling stocks under $2.50 requires more capital) and allows short selling of OTC BB and Pink Sheets stocks. Interactive Brokers does not allow for reserving shares to short; the first trader to get a short order filled gets the shares. Because Interactive Brokers’ system automatically searches for stock to borrow from various lenders and then displays how many shares are shortable, if it shows that there are no shares to short, placing an order to short is almost futile. You can place an order, which will cause the system to automatically look for more shares, but I have found that to almost never result in the system finding shares. The one benefit of placing an order is that TWS should notify you if you place a short order for which there are no shares and shares do later become available.
[Update 2017-5-3]: Interactive Brokers allows preborrowing shares to short of any stock. To submit a preborrow order you must have a Portfolio Margin account (this requires approval and a minimum $110,000 equity in your account). Preborrow orders are accepted on all US stocks and the minimum size for a preborrow order is $10,000. Preborrowing shares reduces the likelihood of a forced buy-in and will enable a short seller to sell short stocks that are hard to borrow. Preborrowed shares can be held without shorting the stock for up to 3 days (afterwards they will be automatically returned). There is a $20 per ticket charge for each filled preborrow order.
See the first video below for how to use the shortable column. The quick way to add it is to right-click the column header just to the right of where you want the shortable column, then select “Insert column before XXX column” > “Contract Description” > “Shortable”.
Below is a video about how to use Interactive Brokers’ short stock availability tool. (Direct link to video)
Disclosure: Updated 4-12-2018 to add info on Tradestation. No positions. I use Interactive Brokers (which I love) and Centerpoint Securities (clearing through Vision Financial). I have my IRA accounts at TDA (formerly Scottrade). I have an account at Etrade that I rarely use. I have a disclosure policy.
If a stock is marked as hard to borrow in the trading platform, the user can send a request for the borrow through email or live chat. Lightspeed will then make an additional attempt to secure the requested shares for that specific user.
