Shifting Shares (17 Feb 2019) – Cash is a position #MTFB #LVCG #PRSM
The best trading opportunity in months presented itself last week with Motif Bio (MTFB), as the FDA did not grant approval to Iclaprim as expected. I had a small long position here which opened 80% down, which wouldn’t have been a problem as I intended to trade the bounce on a gap down. Unfortunately, I forgot to set my alarm and woke up at 5am local time only to see that the price had already started moving northwards. The biggest day of the quarter and I missed it!
I usually get excited when I see horrific profit warnings or gap downs of 50% and more – this is not because I have a sadistic side in seeing others lose but for purely selfish reasons – stocks that gap down usually see monster volatility and a ladder of stops is triggered. Extremely oversold rarely stays oversold for long, and there is usually a snap back reaction (see recently G4M, ZOO, also WYG this week which I missed). In this case, Motif went from 5p to 15p. I don’t know what will happen now but that was the opportunity.
I don’t think anybody expected to see Cluff Natural Resources (CLNR) go below 3p again after the news with Shell, but this is why long term investing can be testing. I spun off the other half of my shares around 4p, and it’s looking like the gap will close.
(All charts in this article are taken from SharePad.)
Live Company Group (LVCG) announced a placing which was why I didn’t mention it in previous weeks – I was inside. This annoyed me as it took the momentum out of what was a cracking looking chart, but the terms of the deal seem reasonable. Executive Chairman David Ciclitira is putting £250,000 of his own money in, and shares are given warrants exercisable at 80p which will expire should the shares be sold. This is a great idea in theory, but in my opinion unlikely to be policed. You could always short the equivalent amount of shares to hedge your long and have free exposure to the warrants, though this would cost you borrowing fees. I sold my trading shares once the deal was announced, as I took a small position in the placing. I like the growth story here, with a target price of 150p within two years.
Last week‘s mentions have bared moved, and so the trading case remains the same.
The week ahead
Having flicked through the watchlist, there is very little I see that I want to buy. When this happens, I like to look for shorts. I find that shorting works better in a market where stocks are not moving higher in general, or the big names are struggling. These are often for quick, short term moves, as I don’t short based on valuation (there is nothing to stop an overvalued stock from becoming even more overvalued).
Another thing to remember is that cash is a position. There’s nothing wrong with having a good amount of cash in your portfolio. Chasing sub-optimal trades will only frustrate and may even cost you; sometimes doing nothing is the best option.
I’ve never understood how this stock consistently beat expectations, as everyone seemed to own it but nobody actually used it. To this day, I still don’t know a single person that has ever used Plus500. It’s come out in the wash that they were, after all, making money (and losing it) on client P&Ls. This makes sense as most punters lose money spread betting (around 80%), so as a spread bet provider all you have to do is take the other side of the trade, and you’ll make money 80% of the time. I’m not sure if having a vested interest in your clients losing money is a great business strategy though. Graham has done an excellent article here, calling them a “bucket shop”, which I fully agree with.
What is odd about Plus500 is that they’ve been doing so well, as recent as 27 December, and yet now there are huge problems. I should already be short here, but will try and get one away if there is any bounce. I saw one poor chap on Twitter get stopped out when the real time price never went near the Plus500 price, and he lost £20,000. The way to beat bent brokers like this is to set alerts for price spikes that are not happening in real time, then take the trade. I’ve heard it done before, but like any bookmaker you’ll soon be banned for making money. As far as I know, IG don’t ban anyone for making too much money spread betting, because they hedge their positions (though they do not let you short IG Group!).
D4T4 Solutions (D4T4)
D4T4 Solutions is closing in on a breakout. I like this setup, volumes and volatility are low for what is an illiquid stock.
Eyes will be on 220p waiting for that to go, then it is blue sky territory unless you include the 220p resistance from the year 2000. I don’t know the story now or then, but feel it is rather unlikely anyone holding in 2000 and still holding now will be looking at 220p resistance to break only to sell it.
Blue Prism (PRSM)
Blue Prism has been a nice one to short (when you can get borrow), and I think if 10p falls then it’s likely to drop further. The huge candle in September was when the FT posted a piece that contained no new thoughts or opinions, yet stops were triggered. I said at the time on a tweet that volatility often marks the beginning of a new trend, and for the last six months the trend has been down.
It’s well below most moving averages, and if it tags the red line of resistance again I think this would be a good shorting entry too.
Looking closer, we can see this is a key price action area:
This is a piece of trash that has been great to short, though unfortunately I’d closed it before the 10p placing was announced.
Countrywide came onto my radar again last week when I got an alert that 10p had been breached.
This could be the start of a new trend, and I’d look to go long on a backtest of 10p with a tight stop. I don’t know the fundamental case now but I would not make this a big position on account of its past.
Like previous miner mention KAZ, FXPO is now looking good for a breakout. Volumes are up since the start of the recent move, with dips being bought. I’d be tempted to go long here at 270p as the price is above all moving averages and the 200 EMA is trending upwards.
We are still in uncertain markets, and I think that holding cash in order to take advantage of sudden market moves is a sensible option.
At the time of publication, the author has financial interests in securities discussed in this article.