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Former Supernova: The Key to Revving Up The Action?

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Written by Timothy Sykes
Updated 3/23/2023 5 min read
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One of the toughest challenges for traders is resisting the urge to trade.

It takes guts…discipline…and patience to make it in this game.

I’ve made over $7.4 million in career trading profits and have coached several people on their journey to becoming millionaire traders. So I know what’s possible.

Some days, there is simply nothing going on…the price action is choppy, and the trading volume dries up.

But then there are those days…like yesterday…where a former Supernova wakes up and explodes…creating a frenzy of potential opportunities in several stocks.

If you don’t know what to look for, you’ll likely miss out on some true money-making action.

But if you continue reading, you’ll be more than prepared…not only for this opportunity…but for several others that come along…

In fact, if you want to succeed as a trader, you need this tool in your arsenal.

 

Big Earnings Surprise Could Spark Another Rally In These Stocks

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Everyone’s favorite “meme stock” shocked Wall Street on Tuesday night when it posted its quarterly earnings.

GameStop (GME) posted Q4 adjusted EPS of $0.16…significantly better than expectations of $(0.13). In addition, it posted Q4 sales of $2.23 billion…above the street’s estimate of $2.18 billion.

The stock rallied by more than 40% in the after-hours on Tuesday.

Why should we care?

GameStop was responsible for two major themes in the market in 2020 and 2021.

The first was to bring attention to highly shorted stocks. GameStop became a Supernova largely because it was a heavily shorted stock…the retail buying frenzy behind it caused one of the most memorable short squeezes recently.

Traders piggy-backed off that idea and started looking at other stocks with high-short interest.

They started buying up shares in stocks like AMC Entertainment (AMC), BlackBerry Limited (BB), and Bed Bath & Beyond (BBBY)…which also experienced notable short squeezes.

Second, GameStop became popular on online forums like Reddit…creating a brand new category of stocks called “meme stocks.”

This week’s positive earnings report could create several sympathy plays.

What are sympathy plays?

A sympathy play is when an investor buys stock in a similar sector or experiences a similar catalyst.

GameStop is in two categories: high short-interest stocks and meme stocks.

More Breaking News

While it doesn’t appear that GameStop’s earnings will spill over to other stocks in its category, it’s essential you learn how the sympathy play works.

How To Capitalize On Sympathy Plays

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Look For Ultra-Niche Sectors. Some ultra-niche sectors include space travel and exploration, cannabis, cryptocurrencies, electric vehicles, and AI.

Whenever there is a positive catalyst in a stock in an ultra-niche sector, it has the potential to lift other stocks in the category up.

Why is this important?

Because if you miss the first move…you have an opportunity to catch the second.

Some News Catalysts Can Create Sympathy Plays.

The two of the biggest news catalysts we’ve seen in 2023 that have created sympathy plays are companies attacking short-sellers and AI.

For example, Genius Group Ltd. (GNS) went from $0.60 to $8 largely because its press releases stated that it would investigate short-sellers.

This caused other companies to issue similar press releases…We saw them in ticker symbols ENZ, HLBZ, MULN, and many others.

When AI was the hot news story…we saw major moves in ticker symbols AI, BZFD, MOBQ, and an army of others.

How To Take Advantage Of Sympathy Plays

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Pay attention to the news catalysts. If a company issues a press release and its stock experiences a spike…traders will naturally look for other stocks in a similar sector or with similar news.

One way to get ahead is to create a list of stocks that fit in a niche. The beauty of Supernova spikers is that they sometimes come back. If you have a list of stocks ready to go…you’ll be able to act quickly once the news hits.

If you’d like to learn more about this and how I’ve mentored over 30 of my students on their journey to becoming millionaires, check this out. 

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* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”