We have a new hot theme on our hands!
Yesterday cemented the theme with the third stock with the same news having a massive day.
I didn’t like it the day before because I don’t like to trade the news on day one…
But once I show you these three charts, you’ll see what an incredible trade opportunity they can present if you let them prove themselves on day one and they end up holding up.
Use this information to look for more hot theme plays today!
If you’re not on top of the news headlines — start using StocksToTrade’s Breaking News Chat today!
The New Hot Theme To Watch Right Now
Reverse splits can be confusing to some traders.
When a company does a reverse split it makes the stock price go up. And when new traders see a stock that’s up hundreds of percent, it can look like a good stock to potentially trade…
After all, it’s a big gainer.
But reverse splits don’t change the value of the company. It just reduces the float and increases the price.
And it’s not a news catalyst that can necessarily make the stock go higher after its initial price increase.
But the good thing about a reverse split is that it can make the stock float so low that it has the potential for volatile moves.
There are three recent examples that show stocks with a recent reverse split are a hot theme.
But there is one caution I have for anyone who wants to trade these…
Three Recent Reverse Stock Splits With Big Moves
The first stock to go wild after a reverse split was MSP Recovery, Inc. (NASDAQ: LIFW) on Monday.
The company announced it would complete a one-for-25 reverse split on October 3. The change was effective on October 12.
The split brought the stock float down to fewer than 3 million shares.
And when it broke out over key levels, it went parabolic from $3 to over $17!
LIFW chart: 6-month, daily candle — courtesy of StocksToTrade.com
PaxMedica, Inc. (NASDAQ: PXMD) is another stock that had a recent reverse split. And it made its big move on Tuesday…
The company announced its split on October 30, taking effect the next day on October 31.
Then on Tuesday, the company announced its Autism Spectrum Disorder phase 2 study results were published in a peer-reviewed journal.
That gave the stock a catalyst. And with its new low float of fewer than half a million shares, it had the potential to go wild — and it did…
It went from a previous close of $3.05 to a high of $10.26 in one morning.
PXMD chart: 6-month, daily candle — courtesy of StocksToTrade.com
Novo Integrated Sciences, Inc. (NASDAQ: NVOS) announced its one-for-10 reverse stock split on November 2 with the split taking effect on November 7.
But even though we just had two big runners that were splits — I didn’t like it on day one.
You can see from the past two charts that the stocks didn’t make any significant moves on the day of the split…
The big moves were sparked by a chart pattern and a news catalyst.
But after NVOS proved itself on day one and held up, I liked it yesterday morning.
I said it was a watch for a break above the previous day’s high.
Because it was a stock that proved it could hold up and had a chart pattern with key levels to trade off. The way it held up coupled with the last two big runners showed me this is a hot theme…
The break over the day one high created a 25%+ move.
NVOS chart: 6-month, daily candle — courtesy of StocksToTrade.com
So while these stocks all had nice impressive moves post split, my word of caution is to not anticipate any moves.
There are a lot of traders out there who buy reverse stock splits on the first day that they’re effective, thinking the stock will go up.
But that’s just gambling…
You can see from the charts above that the stocks don’t always have big moves on the day of the split.
Instead wait for a news catalyst to come out or a chart pattern where you can plan a trade with an entry, goal, and stop loss.
That will put you one step ahead of the gambling traders.
I explain trading concepts just like this daily in my Pre-Market Prep live webinar each morning.
I cover which stocks I’m watching and for which setups and I answer questions traders have about stocks on their watchlists.
It’s interactive and educational — see how you can join by attending a free live training session here.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
P.S. After teaming up with a rogue Wall Street insider, and spending over $1 million on research and development, Tim Sykes is revealing his patent-pending AI-powered trading system for the first time ever. Be one of the first to see it here.