Analysis discontinued
How to think about MEME stocks
without collusion between investors
R&D - we saw something today
May 17, 2022
By: Jeffrey Cohen, Investment Advisor Representative
US Advanced Computing Infrastructure, Inc.
May 19, 2022 (Updated, but still DRAFT version)
On May 17, 2022, we were doing our pre market video and it came to us.
Our model identifies stocks that have abnormal trading activity. Our immediate response has been to do a quick valuation, and if their intrinsic fundamental value is above the stock price, they go on a watch list. However, today we dug deeper and two stocks we identified as having 'great setups' actually did run higher today.
A third stock where we did the whole 'intrinsic valuation' and fundamental analysis also ran today, but not as spectacularly.
US Advanced Computing Infrastructure, Inc.
May 19, 2022 (Updated, but still DRAFT version)
On May 17, 2022, we were doing our pre market video and it came to us.
Our model identifies stocks that have abnormal trading activity. Our immediate response has been to do a quick valuation, and if their intrinsic fundamental value is above the stock price, they go on a watch list. However, today we dug deeper and two stocks we identified as having 'great setups' actually did run higher today.
A third stock where we did the whole 'intrinsic valuation' and fundamental analysis also ran today, but not as spectacularly.
The key to finding a MEME stock that might run today (a good setup) is to cover all of your bases and do your homework.
Create the big list:
1. Find stocks with higher than average price volatility and a poor sense of direction. Stocks that trade around a certain price level and return to that level. Stocks with low BETA often trade their own way, separate from the market. We do this in our CQNS DOWN run. We also look for combinations of stocks to trade. Usually one stock at a time is the way to trade these. We also find that unprofitable stocks tend to have higher variance (fewer buy and hold investors) and so MEME more often. We also checked pre-market action and looked for very active stocks, ones that stood out as having significant volume at a time when spreads and costs are the greatest, when the exchanges are closed. Pre-market is paradise where trading costs don't matter and higher spreads are acceptable. It is where messages are sent, but at a cost.
2. Look at relative price level against the past days, weeks or months. Is the stock up or down vs. normal support levels. If down, this is good. More room to run. A falling stock price does not mean the stock will run, but it helps to increase the odds that the stock will be pumped to run. One stock we were evaluating trades at $0.11. The feeling on social media is that it is easier to drive up an $0.11 stock than an $11 stock because you get to add two zeros to your transaction sizes. It is like turning the amplifier to '11' in the movie This Is Spinal Tap.
3. Recent short volume. I like to see significant short volume (big spike) in the recent past (a few days to a week or two). Step one is to see the shorts loading up and building their positions. Step two is to see longs loading up their positions quickly and significantly after the shorts did theirs. If we see significant short volume for an extended period of time, we have a feeling that the stock can move the other way, and counter the over-selling.
Another setup, maybe better, is to see the longs loading up first (maybe for a few days to two week), then the shorts (short volume) come in heavy (large volume, and ~60% short volume). These 'fresh' shorts will likely stop loss out if the stock moves against them quickly. The older (say 1 week to three months ago) longs are ready to run up the stock and sell into the strength. They already own the shares, so any incremental demand is profit for them.
In a current MEME runner potential, we see a stock that has fallen from a dollar to as low as $0.07. We see two loading periods in the short volume reports. They both are very bullish, and one period lasts ~5 days. At this point, accumulation is occurring and the stock has fallen by half to $0.08. There is almost no short action (less than 38% of shares are sold short on the last day). In my mind, I can imagine some of the big players have loaded up shares, are holding onto significant losses, and will take this stock higher. The stock moves after the load and the shorts come out in force, shorting more shares as the price rises to $0.15.
4. We then look at shares available to borrow to short. In the best setups, there are NO shares to borrow. In other setups there are just a few shares to borrow. The problem with seeing millions of shares available to short is that once the run-up starts, it can be put out like a candle by more shorts selling more shares into the rally. This was the setup today with $BBAI and $BBIG.
BBIG: Load, short, load, then no shares to borrow
BBAI: Load, short, no shares to borrow.
UPST: Zero shares available to borrow.
In the case of UPST, it had a massive stock price collapse, followed by short volume, then today...no shares available to short. This removes a very normal check and balance in the system.
5. Volume
This is where the model gets tricky. When we see volume in pre market, often the move up has already begun and buying at the open means the run is well underway and the buyer is chasing the stock. These runs require above normal volume to overwhelm the market makers in the stock, and those with liquidity to bet against the move. The other way that volume helps, when there are no shares to borrow, is that the nervous holders of a stock, or paper hands, will sell early into a rally. They are glad to make a few pennies, possibly break even, and exit their position. However, once we see significant volume those paper hands become empty. Now, the selling comes from more committed holders, possibly institutional holders or insiders who have to report their changes in positions. You see tax gains and tax considerations. You may need to see significant price movements before those shares free up. A quick spike in volume, say for a few hours, does not give time for those closely held shares to come to market.
With BBIG today, the run was over in under an hour, from 09:30 to 10:25 ET. Volume was over one million shares every five minutes. Volume declined the rest of the morning, as did the stock price. There was another peak in the early afternoon which also fell short 30 minutes before the close. Volume peaked into the close while positions were liquidated. No reason to hold this stock overnight if you were looking for a quick pop. There was a 5% gap up a the open.
With BBAI today, the run lasted from 13:50 to 14:35 ET, on higher but still relatively low volume. From 14:45 to 14:55 it rallied again on higher volume, but did not reach the prior peak. By 15:35 the rally was over and this stock sold into the close. It is up after hours.
6. Social Media
There needs to be significant social media attention to a stock to get it to run. This is not easy to do. I would suggest you watch the ticker(s) you are interested in and look for both the BOSS accounts with significant followership, and lots of little accounts. The logic looks like this:
a. A low price stock (say anywhere from $0.01 to $1.00) is identified and the shares are acquired. If careful, the shares are loaded while the price continues to fall, building on prior momentum. You can see dark pool volume climb 100x for a stock being acquired and targeted. Buying and selling in the CBOE exchanges brings too much attention, but is inevitable once people realize a stock may be in play.
b. The social media whales start to mention the stock online. This is where we see it. It almost seems like a name drop, and we may quickly check a ticker to see what it is about. For me, usually the stock is a dog with fundamental issues, maybe loses money or has business issues. I move on...but others add the stock to their 'potential runner' list.
c. Massive social media volume, often from bot or low volume / new accounts. I believe these are people who are 'long and loud' and creating a buzz to pump their own positions. I do not doubt for a minute that some are paid for posts. Some are negative posters warning people off the stock. All in all, a stock that has significant social media coverage should make a list of some sort. The larger the market capitalization of the stock, the more chatter we would need to bring in volume and buyers.
d. Not all runners are discussed in social media. Some are silent runners where the short volume is so heavy, and the ability to borrow so narrow, that it just happens. It is possible that for small capitalization stocks these discussions are held in private forums (possibly paid or invitation only chat rooms), and the limited, non public number of participants are enough.
7. Options on individual stocks
This is likely important as a way to leverage up bets, or to bet against a stock without borrowing and shorting the shares. However, we still need to research this point further. It seems that a stock with no options is easier to run.
Another runner scenario:
This stock had at least 14 consecutive days of > 60% short volume. Volume was not very high during this period, and the stock dropped by 1/3. Over the next 5 days short volume was less than 50%, and the stock price bottomed, then rose back to where it was when the shorts dropped off. The rise was on lower volume. However, from bottom to now, the stock is up 30%, which seems like a quick profit. the stock made a run today but did not hold and fell back. Interesting to note that yesterday there were zero shares available to borrow and just a few today (up to 300k at the close). This stock is heavily traded in options. This stock was up and down today. However, we did due diligence and this $13.00 stock is only worth around $2.00 to us. No wonder why it had 14 days of heavy selling, the fundamentals are terrible and it seems an easy short. There is even a bankruptcy risk, so it could drop to zero by 2024.
Another runner scenario:
We found 5 stocks that were low in price (down by 66.6% or more) and had 4x average annual volume. I figured this had to be good, stocks that were in play and low relative prices. In fact, they were well performing today. When we dug into one of them and did fundamental analysis, it was obvious why the stock was down on volume. It was a significant bankruptcy risk. The others might have been better, but we did due diligence (DD) on so many MEME stocks today we did not get to the other 4. Maybe tomorrow. Maybe we picked the wrong one to look into.
In summary, a MEME stock runner is based on trading activity, and not necessarily based on fundamental analysis. It requires an imbalance somewhere, either for a stock to fall quickly or for a stock to rise quickly. To rise, it needs a significant amount of short activity in the stock, then the inability to short the stock further while everyone watches it rise. People are buying and selling all the way up the climb, and by the end of the day the runner is exhausted and put to bed. The next day starts a whole new pattern.
Good luck to all. Be careful, and never invest more than you can afford to lose.
This is not investment advice.
Create the big list:
1. Find stocks with higher than average price volatility and a poor sense of direction. Stocks that trade around a certain price level and return to that level. Stocks with low BETA often trade their own way, separate from the market. We do this in our CQNS DOWN run. We also look for combinations of stocks to trade. Usually one stock at a time is the way to trade these. We also find that unprofitable stocks tend to have higher variance (fewer buy and hold investors) and so MEME more often. We also checked pre-market action and looked for very active stocks, ones that stood out as having significant volume at a time when spreads and costs are the greatest, when the exchanges are closed. Pre-market is paradise where trading costs don't matter and higher spreads are acceptable. It is where messages are sent, but at a cost.
2. Look at relative price level against the past days, weeks or months. Is the stock up or down vs. normal support levels. If down, this is good. More room to run. A falling stock price does not mean the stock will run, but it helps to increase the odds that the stock will be pumped to run. One stock we were evaluating trades at $0.11. The feeling on social media is that it is easier to drive up an $0.11 stock than an $11 stock because you get to add two zeros to your transaction sizes. It is like turning the amplifier to '11' in the movie This Is Spinal Tap.
3. Recent short volume. I like to see significant short volume (big spike) in the recent past (a few days to a week or two). Step one is to see the shorts loading up and building their positions. Step two is to see longs loading up their positions quickly and significantly after the shorts did theirs. If we see significant short volume for an extended period of time, we have a feeling that the stock can move the other way, and counter the over-selling.
Another setup, maybe better, is to see the longs loading up first (maybe for a few days to two week), then the shorts (short volume) come in heavy (large volume, and ~60% short volume). These 'fresh' shorts will likely stop loss out if the stock moves against them quickly. The older (say 1 week to three months ago) longs are ready to run up the stock and sell into the strength. They already own the shares, so any incremental demand is profit for them.
In a current MEME runner potential, we see a stock that has fallen from a dollar to as low as $0.07. We see two loading periods in the short volume reports. They both are very bullish, and one period lasts ~5 days. At this point, accumulation is occurring and the stock has fallen by half to $0.08. There is almost no short action (less than 38% of shares are sold short on the last day). In my mind, I can imagine some of the big players have loaded up shares, are holding onto significant losses, and will take this stock higher. The stock moves after the load and the shorts come out in force, shorting more shares as the price rises to $0.15.
4. We then look at shares available to borrow to short. In the best setups, there are NO shares to borrow. In other setups there are just a few shares to borrow. The problem with seeing millions of shares available to short is that once the run-up starts, it can be put out like a candle by more shorts selling more shares into the rally. This was the setup today with $BBAI and $BBIG.
BBIG: Load, short, load, then no shares to borrow
BBAI: Load, short, no shares to borrow.
UPST: Zero shares available to borrow.
In the case of UPST, it had a massive stock price collapse, followed by short volume, then today...no shares available to short. This removes a very normal check and balance in the system.
5. Volume
This is where the model gets tricky. When we see volume in pre market, often the move up has already begun and buying at the open means the run is well underway and the buyer is chasing the stock. These runs require above normal volume to overwhelm the market makers in the stock, and those with liquidity to bet against the move. The other way that volume helps, when there are no shares to borrow, is that the nervous holders of a stock, or paper hands, will sell early into a rally. They are glad to make a few pennies, possibly break even, and exit their position. However, once we see significant volume those paper hands become empty. Now, the selling comes from more committed holders, possibly institutional holders or insiders who have to report their changes in positions. You see tax gains and tax considerations. You may need to see significant price movements before those shares free up. A quick spike in volume, say for a few hours, does not give time for those closely held shares to come to market.
With BBIG today, the run was over in under an hour, from 09:30 to 10:25 ET. Volume was over one million shares every five minutes. Volume declined the rest of the morning, as did the stock price. There was another peak in the early afternoon which also fell short 30 minutes before the close. Volume peaked into the close while positions were liquidated. No reason to hold this stock overnight if you were looking for a quick pop. There was a 5% gap up a the open.
With BBAI today, the run lasted from 13:50 to 14:35 ET, on higher but still relatively low volume. From 14:45 to 14:55 it rallied again on higher volume, but did not reach the prior peak. By 15:35 the rally was over and this stock sold into the close. It is up after hours.
6. Social Media
There needs to be significant social media attention to a stock to get it to run. This is not easy to do. I would suggest you watch the ticker(s) you are interested in and look for both the BOSS accounts with significant followership, and lots of little accounts. The logic looks like this:
a. A low price stock (say anywhere from $0.01 to $1.00) is identified and the shares are acquired. If careful, the shares are loaded while the price continues to fall, building on prior momentum. You can see dark pool volume climb 100x for a stock being acquired and targeted. Buying and selling in the CBOE exchanges brings too much attention, but is inevitable once people realize a stock may be in play.
b. The social media whales start to mention the stock online. This is where we see it. It almost seems like a name drop, and we may quickly check a ticker to see what it is about. For me, usually the stock is a dog with fundamental issues, maybe loses money or has business issues. I move on...but others add the stock to their 'potential runner' list.
c. Massive social media volume, often from bot or low volume / new accounts. I believe these are people who are 'long and loud' and creating a buzz to pump their own positions. I do not doubt for a minute that some are paid for posts. Some are negative posters warning people off the stock. All in all, a stock that has significant social media coverage should make a list of some sort. The larger the market capitalization of the stock, the more chatter we would need to bring in volume and buyers.
d. Not all runners are discussed in social media. Some are silent runners where the short volume is so heavy, and the ability to borrow so narrow, that it just happens. It is possible that for small capitalization stocks these discussions are held in private forums (possibly paid or invitation only chat rooms), and the limited, non public number of participants are enough.
7. Options on individual stocks
This is likely important as a way to leverage up bets, or to bet against a stock without borrowing and shorting the shares. However, we still need to research this point further. It seems that a stock with no options is easier to run.
Another runner scenario:
This stock had at least 14 consecutive days of > 60% short volume. Volume was not very high during this period, and the stock dropped by 1/3. Over the next 5 days short volume was less than 50%, and the stock price bottomed, then rose back to where it was when the shorts dropped off. The rise was on lower volume. However, from bottom to now, the stock is up 30%, which seems like a quick profit. the stock made a run today but did not hold and fell back. Interesting to note that yesterday there were zero shares available to borrow and just a few today (up to 300k at the close). This stock is heavily traded in options. This stock was up and down today. However, we did due diligence and this $13.00 stock is only worth around $2.00 to us. No wonder why it had 14 days of heavy selling, the fundamentals are terrible and it seems an easy short. There is even a bankruptcy risk, so it could drop to zero by 2024.
Another runner scenario:
We found 5 stocks that were low in price (down by 66.6% or more) and had 4x average annual volume. I figured this had to be good, stocks that were in play and low relative prices. In fact, they were well performing today. When we dug into one of them and did fundamental analysis, it was obvious why the stock was down on volume. It was a significant bankruptcy risk. The others might have been better, but we did due diligence (DD) on so many MEME stocks today we did not get to the other 4. Maybe tomorrow. Maybe we picked the wrong one to look into.
In summary, a MEME stock runner is based on trading activity, and not necessarily based on fundamental analysis. It requires an imbalance somewhere, either for a stock to fall quickly or for a stock to rise quickly. To rise, it needs a significant amount of short activity in the stock, then the inability to short the stock further while everyone watches it rise. People are buying and selling all the way up the climb, and by the end of the day the runner is exhausted and put to bed. The next day starts a whole new pattern.
Good luck to all. Be careful, and never invest more than you can afford to lose.
This is not investment advice.
Luquillo Beach, Puerto Rico. Right on the water. We don't know them...but love the tag.