Friday morning had some weird premarket action…
During Pre-Market Prep, all Oracle stocks showed bearish price action.
But by the time the market opened two stocks had switched to bullish.
You were probably watching these stocks too — since they were two of the big percent gainers that morning…
But when the market opened, both failed.
So today I want to share a few reasons why so that you can avoid getting sucked into stocks that have a low probability of spiking…
And you can ignore stocks that don’t hit your entry signals.
Plus, I’ll share another stock that was brought up multiple times during Pre-Market Prep that also ended up failing.
These examples of failed spikers can help you recognize how important it is to stack odds in your favor, so let’s go!
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Why These Three Stocks Failed
There weren’t a whole lot of stocks to choose from in premarket on Friday.
Oracle had Virgin Galactic Holdings, Inc. (NYSE: SPCE) and Nikola Corporation (NASDAQ: NKLA) on its radar … And they were the only two stocks with bullish price action near the open.
Right away, I didn’t like NKLA…
It already had seven green days in a row. If it continued higher on Friday, that would’ve been the eighth day.
And I just didn’t see high odds that it could continue higher.
I mean it could have … But I’m not here to play guessing games. I want to stack the odds in my favor.
And when I looked at the chart, it showed me it was due for a first red day at some point…
NKLA chart: 3-month, daily candle — courtesy of StocksToTrade.com
Turns out, the first red day ended up being on Friday. So anyone who was in my morning webinar could’ve played it safe and stayed out of a losing trade…
Next up was SPCE…
I didn’t like the large float, but I loved the chart pattern. It baited shorts all through the premarket and it had a solid support level.
So I made a plan for it with an entry signal above $6.
If it went sideways, I didn’t care about it. If it faded, I said, rot in hell…
I only cared if it could get over $6 and potentially squeeze shorts.
In this case, the shorts won and it faded, so I didn’t care about it.
It was worth making a trading plan for. And following that plan and waiting for the right signal level would’ve kept you safe from a losing trade.
So why did SPCE fail?
- It was easy and cheap to borrow shares for short sellers.
- It has a huge float so it needs a ton of volume to spike.
- The stock is full of bagholders since it’s down from about $50 two years ago to now around $4…
SPCE chart: 2-year, daily candle — courtesy of StocksToTrade.com
On Friday — Mullen Automotive, Inc. (NASDAQ: MULN) — another ultimate bag holder stock was brought up multiple times in Pre-Market Prep…
How do I know it’s the ultimate bag holder stock?
About six people typed the ticker into the Pre-Market Prep chat on Friday. And when I brought up the chart to see if there was something going on with it, I saw that it was up 1 cent — 1 CENT!
Bagholders were actually excited it was up one cent and were trying to get others to buy in and pump their bags…
I’ve been talking about this stock for probably nine months … I keep warning people that the company keeps diluting shares. Yet traders have kept trying to guess the bottom…
MULN chart: 1-year, daily candle — courtesy of StocksToTrade.com
But there’s a lesson here…
If you want to know how to recognize a bag holder stock, just look for people spamming tickers like crazy in chat rooms and on social media.
And if it’s only up one penny — you know it’s the ultimate bag holder stock.
So if you want to put the odds in your favor for a trade this week, pay attention to the float and the history of the stock, and wait for your signal levels to get hit before entering a trade.
Waiting for confirmation can save you from a lot of unnecessary losses.
Also, ignore stocks that have gone parabolic for multiple days without a pullback. Stocks can’t go straight up forever.
Hopefully, these lessons and examples help you in your trading this week!
If you want more education — sign up to get my Market Update videos three times per week.
Have a great day my friends. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade