I'm stuck in a small-cap stock I didn't research. I very rarely swing trade small-caps these days and this is just a reminder of why. I day-traded VERB on Thursday as I outlined the setup/plan here and discussed on Twitter here. I liked the RCAT daily chart for a breakout higher this coming week so I went long 6.32 average as it was a perfect end-of-day setup that lined up with the daily chart bullish action. While originally planning to use 5.85 as my risk guide I ended up taking some gains off into close to get my size down. Next time I like a small cap chart I'll remember to day-trade it or look for a few red flags discussed below.
Red Cat Holdings (RCAT) announced a ollow-on secondary offering at 7:30PM EST on Friday night hoping it would go under the radar. However, it promptly caused the stock to fall 22% in late-session trading. No offerings go under the radar. Sometimes the offering was known about and investors are there to soak up extra shares because they believe in the company or sometimes it comes out of nowhere and spooks investors away. But did it really come out of nowhere?
Redflags to notice:
1) Is there an effective S-1 or S-3 shelf registration filing on SEC's EDGAR to sell shares? What is an S-3? In short, it's a form companies file that allows them to sell shares when they need money up to 3 years after the SEC deems the filing effective.
Red Cat had an effective S-3 as of June 14th to raise up to $100 million.
2) Did the company burn more cash last quarter than it has on hand for this quarter?
-RCAT had less than $500,000 cash on there last 10-Q.
-RCAT had more than a $1 million operating loss that quarter.
Even when you subtract the stock based compensation of $854,195 they still operationally lost $292,658 in operations. Hence why their acquisitions have been stock based, such as the Teal deal last week. Raising money to allow further operational spending helps, but it also dilutes current shareholders. Only time will tell if the majority of shareholders are okay with this strategy as it reflects in the stock price.
3) Did the company recently, within the last year, uplist from the OTC and is looking to raise money for the potential to have potential as a growth stock? RCAT uplisted and has now raised money twice since.
4) Did an underwriter's analysts recently upgrade the stock to a buy? RCAT has not seen this, but plenty of other small cap stocks see this as the analyst sets the tone for their underwriting services to help the company raise money. Roth Capital is notorious for putting ridiculous 'buy' targets on a stock only to be the offering underwriter within a year. See KMPH example; January 25th put a $28 target on the stock when it was at $6. By July help the company raise $39 million. Although it is technically an illegal practice it is still pretty obvious but hard to prove it was rigged. Nonetheless, it's a red flag to make note of when wondering if the company could complete an offering in the near future.
5) Did the company just accomplish a huge milestone and want to take advantage of this by raising money to turn the accomplishment into future company growth? See Virgin Galatic (SPCE) launch an offering just before the opening bell the day after Branson reached Astronaut status. The stock was down 38% this past week as the offering spooked more investors than were willing to buy it.
Do your trading accounts have more cash than the company? Probably should focus on day-trading it rather than investing in it. In fact if any of the above red flags concern you about getting stuck overnight in a stock that needs/wants to raise more money then focus on the day-trade and be out by close. It's a new day tomorrow. Some stock you haven't heard of yet is setting up a anticipatable move somewhere.
KNOW THE NEWS, TRADE THE ACTION.
STOP BLAMING COMPANIES & OTHER TRADERS.
KNOW YOUR EXIT PLAN IN ADVANCE WIN OR LOSE.
Speaking of anticipatable moves, there are many nice setups out there right now. Pick your favorites in an 'A' list and build trading plans in advance keeping those charts on screen. Build a few other trade plans in a 'B' list and set alerts in case they hit the breakout point. Knowing your trade plan in advance of an alert hitting your screen will allow you to trade without second guessing yourself when it's time to make the move. After all as traders, one trade is just one trade. Make it, learn from it, and move on.
Here are 10 new additions to my watch/alert lists this week after I deal with RCAT depending on how it opens. I actually think RCAT's offering is not that bad considering they only filed to raise $100 million and the stock traded 10x that last week alone. Of course, price action dictates what I do, but I could see myself selling out only to revisit it in the future as the long-term chart is very bullish. If buyers are willing, it could pull a BYRN and actually go up post-offering.
BYRN - Completed an offering last week and the stock went up, a bullish sign as the chart is also aligning for a continuation breakout in the near future.
CELU - Changing from GXGX tomorrow, this cancer fighting stock could be a growth name in the coming years. A spinoff from Celgene with 5 drugs in the pipeline, thus not a one trick pony if one fails. Again, know the news, trade the action. CELU peaked around 12.50 on Friday. Let's see if 10 can hold as the floor now. If I decide to trade it, I'll probably use 10 as risk guide. Since they are raising $138 million through the SPAC deal, I'm comfortable swing trading CELU as long as the price action is there. It was already back over 11 in late session, so I'll be looking at August 12.50 calls to day-trade and potentially use profits for cheap February $20 calls to swing trade. Options are not listed on Robinhood yet, but Ameritrade and other brokers are trading them.
AEHR - Day-trade and swing trade candidate based on Friday's volume and daily chart action. They recently announced that revenues are back to pre-pandemic levels and projected 70% revenue growth into 2022. No current S-3 shelf effective. Last one was in 2017 and they are only good for 3 years. Doesn't mean they can't announce a private placement and register later when the buyer turns seller and wants out.
NVAX - back on watch now after MRNA's monster week. It needs to build over 190ish with a short-term target of 220.
BNTX - Also a Covid vaccine name back on watch here. A continuation breakout over 240 could get this going towards 270-300 range in the coming days. China is finally realizing that the mRNA vaccine may be the way to go as studies prove it is 10x more effective than their own Sinovac. BioNTech already has a deal in place if China chooses to move in the mRNA direction.
ZYXI - Looking at November $20 calls for a quick trade if the sudden bullish reversal turns into a bigger inverse head and shoulders pattern breakout over 17.50. Company announced a large increase in revenue last week helping jump start this opportunity for a chance at the breakout. Again, know the news, trade the action. It could stall out at 17.50. If it does, I'll avoid for now.
XMTR - Recent IPO has been basing. Lower volume, but I'll just trade smaller if it starts to breakout. I like the range potential for a push towards 85 if it gets going. A manufacturing company getting into the 3D printing space; of which I think sector growth is just getting started long-term as you know I have traded DDD plenty this year. If it fails to breakout in the next few days a bearish break below 60 could also yield a quick short if you can borrow shares. Trade what it gives us.
QDEL - A now beat down Covid run-up name from last year on watch for a bullish reversal over 135. Not a buy right now for me as I haven't picked a strike yet, but it's worth adding an alert here. With an Average True Range of 5, anything 150-175 September calls could pay well if gets going into August.
GLBE - Watching this consolidation range. A Shopify backed company that has performed well since IPO and could break one way or the other soon. Big range potential. No options for it yet though.
COST - Nice breakout in June over 390. Now watching to see which way it breaks from here. A flush below the trend line and I'll utilize short-term $400 puts; while breakout over 415 for another leg up I'll use short-term $420 calls.
More on Twitter! Chart request? Ask away, but don't be offended if/when it's not what you want to hear. We each make our own trade plans.