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Posted 2 months, 3 days ago.

A Scary Perfect Short Into A Slumping Supernova

Tags: Hot Stocks, Impatience, Patterns To Short, Short Selling, Supernovas

Since its stock has quadrupled since the beginning of the year, readers of this blog know I’ve been stalking microcrap momentum play Converted Organics (COIN) and its warrants (COINW). Focusing solely on buying breakouts and shorting breakdowns, I’ve had some success and failure, my biggest gain stemming from shorting into its cracking of sideways price action back in January, my biggest loss coming from when I was squeezed out the day before after getting unlucky with some news. As many of you know, I make my money when these microcrappers crap out, so the lack of huge trading profits has not concerned me in the least. As long as I kept up with my stalking, I’d inevitably catch my prey.

stalkingprey

For the most part during this latest surge, I’ve remained on the sidelines—too scared to buy in—waiting for a similar breakdown to short into. Despite breaking its previous high of $14 with four straight up days to the high $16s, the breakout was hardfought and the volume decreased each day. Very bearish—particularly encouraging was a late afternoon fade on Thursday—but would it first go out with a bang? After all, the company had proven it knows how to pump its stock, timing PRs perfectly to squeeze the shorts.

On Friday, I awoke early to reserve shares just in case it was the reversal day. Thinkorswim had no shares of COIN, but I was able to reserve 300 shares of COINW. Sweet: lower priced and more volatile, just had to watch out for its nasty spread between the bid and ask (usually 25-40 cents).

At the market open, COIN and COINW tanked hard, each down $1+, okay, this was good, crack in the sideways price action—not perfect, but trading between $16.50 and $17, aka close enough, the momentum clearly cracked, the question was would it at least bounce first (I hate shorting into crashes due to the risk of bounces). Fortunately, the stocks did bounce, COINW nearly $2 from $10.50 to the unchanged mark at $12.50, but no more—a wall of sellers entered. Summary: Tank, bounce, no breakout, ideally I’d wait til the afternoon to short, but since the spread was so ridiculous, I had to get in early—so I shorted 300 shares at $12.35ish. Thinkorswim chat guy screwed up my executions a bit, but after some more chatting, it was all fixed within 5 minutes (no other firm would do that).

With the wall of sellers firmly in place when COIN was just up 20-30 cents on the day, the overall market plunging, no well timed PR and decreasing buying volume, the stock went from slightly positive to slightly negative on the day. Within minutes, I was up 75 cents/share on my short. Cool, I’d hold, stocks like these usually stayed slightly negative for hours or days before the big plunge. Unfortunately, I wasn’t comfortable just waiting. Since it was still only the late morning (not an afternoon fade) and COIN had bounced on each dip, I covered my 300 shares at $11.34, a nice quick $300 profit.

Buuuuuut, COIN was much less resilient than I expected and within an hour it began plunging past the early morning lows and COINW dropped to $10.30—damn an easy $1 I left on the table. Another hour and the plunge turned into panic, COINW was now at $9.30, down $2 since y cover and $3 on the day! As usual, I had a decent profit, but I left a lot on the table.

coinmarch

coinwmarch

The good news is my new publishing and trading business model means my readers—who benefit from my detailing ALL my mistakes and cannot be any worse timers than me—profit more (and judging by the comments where some people claim to have made as much as $11,000 on this, my plan is succeeding)!

Given the failure of the afternoon bounce, the weak close and confirmed first down day of the pattern, a Monday morning drop is likely, so I’d have re-shorted into the close if possible. But there weren’t any more shares available to short of either COIN or COINW—welcome to short selling microcrappers! Still not sure how much this collapses, at least short-term, it’s either the beginning of the end or a bump in the road, to be determined, doesn’t matter to me either way.

What I did right:

-Recognized the chart pattern as a Supernova, as detailed in PennyStocking

-Patiently waited, not shorting into a breakout until the weak price action really demanded it

What I did wrong:

-Shorted in the morning, making me uncomfortable, leading me to take quick profits
(gift and the curse, as morning turned out to be ideal time to short)

-Covered quickly (another gift and curse, my entry was unusually perfect so even with my quick cover, it was a solid trade/profit)

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Related Reading

How I Screwed Up These Two Near-Perfect Calls To Sell Short May 2, 2008
I Have The Dark Gift: Why I’m Better At Shorting Than Buying February 13, 2008
After The Morning Rain Comes The Afternoon Sunshine February 26, 2008

31 Responses

1Ty Beaches

March 9th, 2008 at 2:43 pm

Nice trade, I would sure like to be able to feel more comfortable shorting..I’m a pretty good chart guy but the unlimited downside risk on shorting is tweaking that FEAR emotion and it’s almost impossible for me to leave a short position in place overnight… I will welcome any advice and want to learn - thanks for this blog. Ty
2Brian D

March 9th, 2008 at 6:22 pm

I hold shorts overnight, generally I play the “supernova” pattern and a few others that has decent profit over a few days. I’d say grow some balls, but I’m young and am a bit risky because I’m still working with under $25,000. I probably oversize a bit too much as well.
3Oliver(TIMBUCKS: $11)

March 9th, 2008 at 8:41 pm

I have noticed those morning spikes quite often and to me they seem profitable. would you recommend to be on the long side for the first 20-30 min of the market open and take some small profits before taking on the short side?
4timsykes

March 9th, 2008 at 11:42 pm

as the pattern plays out, the shorts get more confident so while morning spikes are possible, they’re not as probable, now its the morning tank that is favored
5puma

March 10th, 2008 at 3:07 am

anyone know if etrade has shares of COIN or COINW to short?

and is there a similar play with COINZ?
6COINZMASTER

March 10th, 2008 at 8:14 am

#1 LOOK AT THE TINY MARKET CAP IT IS STILL UNDERVALUED BY FAR!!!!!THE STOCK IS CHEAPER THAN SAY NOEC BASED ON FWD EPS#’S AND MARKET CAP SO COINS SHARE PRICE IS NOT WHAT YOU SHOULD LOOK AT IT IS THE MARKET CAP!!!!!EST. I GET 4 CARBON CREDIT IS 10 MILLION+ ON 5 PLANTS!

ALRIGHT YOU THOUGHT COIN HAD 2-3 SOURCES RIGHT?

1. TIPPING FEES FROM FOOD WASTE

2. SALES OF FERTS FROM WASTE

3. MINI-COIN MACHINE SALES OF UNITS

4. SALE OF LIQUIDS FROM COLLECTION OF MINI-COIN’S

5. ROYALTIES FROM SALES OF MINI-COIN’S OVERSEAS/PLANTS THERE?

6. CARBON CREDITS$$$$$$$$$$$$$$$$$$

7. HOME COIN MACHINES???WHATS NEXT???EPS#’S TO BE HIGHER OF NEXT 5 YEARS FOR SURE.LOOK AT POT,TNH,AGU,MOS,ETC…WE COULD FLY FOR YEARS SON!ACCELERATING REVENUE GROWTH!!!!!!!!!!!!!!!

SHORTS ANY QUESTIONS??????????????

YOUR SO COOKED AND YOU MUST BE SCARED FOR MONDAY WITH OR WITHOUT NEWS!!!!!!!!!!!!!!!!!!!!

HOTTEST STOCK OF 2008 FOR GOOD REASON$$$$$$$$$$

PLZ COMMENT ALL LONGZ AND SHORTZ OK!

===================COINZMASTER=================
7lmsmith

March 10th, 2008 at 8:32 am

The morning Spike in coin- Always work!
8lmsmith

March 10th, 2008 at 8:34 am

I spoke to soon!!!! Opps…
9Stan

March 10th, 2008 at 8:58 am

cya later coin nice knowin ya… haha
10john

March 10th, 2008 at 8:58 am

FYI. Scottrade has COIN to short.
11lmsmith

March 10th, 2008 at 9:08 am

I hoped on board the Short Waggon- made out nice already…
12Stan

March 10th, 2008 at 9:13 am

me too, but i want to hold onto this for days!
13timsykes

March 10th, 2008 at 9:13 am

I can’t even speak right now, its ABSOLUTELY ridiculous that i wasn’t in COIN or COINW for the last $4! Patheticcccccccccccccc
14Stan

March 10th, 2008 at 9:22 am

who wants to play limbo with a coin chart?
15be-the-ball(TIMBUCKS: $21)

March 10th, 2008 at 9:25 am

tim,

I couldn’t get shares this AM at TOS or AMTD… oh well…
16Stan

March 10th, 2008 at 9:26 am

hey tim- can u let us know when the gurus like gartman start reducing or completely letting go their holdings of coin?
17timsykes

March 10th, 2008 at 9:29 am

who cares what gurus do, there’s no guru that can withstand the force of a SUPERNOVA!!!!!
18Lisa

March 10th, 2008 at 9:30 am

gartman crook already sold half when it was 16s
19Stan

March 10th, 2008 at 9:33 am

i was thinking that their large selling blocks will just force the stock lower and lower - haha thanks lisa
20Matt(TIMBUCKS: $5)

March 10th, 2008 at 9:58 am

Large blocks selling dropped COIN from $17 to $12 within the past two trading days. If you have listened to Gartman on fast money last Friday, he said ag play were overbought and will cool down a little bit. He also mentioned he will buy them back when everybody start puking on their shoes probably by mid week this week. That means, probably COIN will fall down to $11.50 -$12 before they starts buying again? Maybe, maybe not! Anyway, at 11AM COIN is flirting around $12.50-$12.80 range.
21123

March 10th, 2008 at 10:02 am

is it still worth it to get into coin for another 0.50 to 1.00 gain from shorting or should we wait to but back when it flatlines……
22The Barber

March 10th, 2008 at 10:13 am

HEY TIM I NOTICED THAT YOU POSTED SOMEONE HAD A 11000 GAIN ON FRIDAY…. WELL NOW ITS @ 23000…. OH AND HOW R U CORN Z MASTER? YOUR MONEY FEELS NICE IN MY ACCOUNT..HA HA.. AND STILL HOLDING!!!! MORE MONEY TO BE MADE….
23The Barber

March 10th, 2008 at 10:16 am

THANX TO ALL THE LONGS WHO BOUGHT NEAR THE TOP… AND AS IT FELL, JUST COULDNT TAKE ANYMORE PAIN AND SOLD INTO TODAY… THANX GUYS YOUR THE BEST!! OH AND TIM IM GETTING THOSE PICTURES OF THE FACILITY UP IN BOSTON STILL WANT THEM? IT MIGHT BE A GOOD STORY..LOL
24lmsmith

March 10th, 2008 at 10:22 am

<~~~ Live in Boston- the facility is a joke
25timsykes

March 10th, 2008 at 10:35 am

see my post above, no point in trying to pick a bottom in COIN, kinda like trying to pick a bottom finance, both are so screwed for the time being, best to just wait it out, for those who like risk, keep a short bias

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