There are so many strategies, patterns, and catalysts you can use to spot trading opportunities — so many that it can become overwhelming.
But successful traders focus on only a few strategies and patterns that work for them…
They can even have their own favorite catalysts they like to trade.
My mentor Tim Sykes is a perfect example…
He’s made millions trading penny stocks but he focuses on very specific strategies and patterns.
Today, I’m sharing one of them with you.
This is a catalyst we’ve seen multiple times in the last two weeks. So learn it and see why it can create huge stock moves you don’t want to miss!
What’s The Small Cap Stock Legitimizer?
My mentor Tim Sykes has been trading for over 20 years. So when he talks about trading and catalysts, people listen…
And one of the catalysts he talks about is called the legitimizer.
It’s when a large, established company does business in some way with a smaller company.
It can be news about a partnership, license agreement, or the sale of a product to a larger company…
And when press releases come out that mention a well-known large company in the headline, it can get day traders excited.
But not only that…
The headlines can also get the attention of part-time traders, or even those who typically trade large-cap stocks.
That’s because the large company legitimizes the smaller company…
Think about it this way … If a large, established, publicly traded company is willing to put money into a smaller company or buy or use one of its products, it makes you think that the small company has something going for it.
Now, that doesn’t mean we believe that the small company will become the next Moderna, Inc. (NASDAQ: MRNA)…
But that’s the image that it puts out to the public.
And that can bring in huge volume into the small stock and send it on a nice run. We want to take advantage of that…
So let’s look at a few examples that have happened in the last couple of weeks…
Legit Examples
We’ve had three of these ‘legitimizer’ press releases over the last few weeks.
It all started on October 24 with LianBio (NASDAQ: LIAN).
The company announced it entered into an agreement with Bristol-Myers Squibb Company (NYSE: BMY). The agreement gives BMS exclusive rights to develop and commercialize LIAN’s drug in China.
The deal put $350 million in the small company’s pockets.
And the stock climbed 151% on the first day the news dropped. It’s continued to grind higher ever since … Going from $1.39 to $4.28 in a few days.
LIAN chart: 3-month, daily candle — courtesy of StocksToTrade.com
Now fast forward to yesterday and we had more cheap stocks with legitimizer news…
Cellectis S.A. (NASDAQ: CLLS) announced a strategic collaboration and agreement with AstraZeneca PLC (NASDAQ: AZN).
The deal gives AZN the rights to CLLS’s proprietary gene editing technologies to develop next-generation therapeutics.
It also gives CLLS up to $245 million in cash and AZN agreed to purchase 16 million new CLLS shares at $5 per share.
CLLS gained over 170% yesterday after the news hit. Look at that massive gap up!
CLLS chart: 6-month, daily candle — courtesy of StocksToTrade.com
Aldeyra Therapeutics, Inc. (NASDAQ: ALDX) also announced legitimizer news yesterday…
The company announced an exclusive option agreement with AbbVie Inc. (NYSE: ABBV).
The press release states, “ALDX will receive a non-refundable option fee of $1 million and an upfront payment of $100 million less option fees if AbbVie chooses to exercise the option. Under the terms of the license agreement, Aldeyra would be eligible to receive up to $300 million in regulatory and commercial milestone payments.”
The stock spiked 50% yesterday and it followed Oracle’s support and resistance lines beautifully…
ALDX chart: one-day, 5-minute candle — courtesy of StocksToTrade.com
All three of these stocks with legitimizer news have larger floats between 36-105 million shares.
But they all traded high volume relative to their float sizes…
CLLS and ALDX both rotated their floats yesterday with over 50 million shares and over 55 million shares traded respectively.
So while they’re not the volatile low-float runners we usually like to trade — I liked the news and the volume they traded.
With so many catalysts and different stocks in the market, it can be tough to know what’s important to watch and which ones to ignore.
But now you’ve learned one more catalyst and indicator to look for…
If you want to learn more — join a free live training session!
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade