Houston, do we have lift off?
In the last post, we talked about the spring setting up. In this post, I’d like to talk about that spring being sprung. However, I’m going to take pause before claiming any victory. Not because I see something wrong, just because it’s SGYP. This wouldn’t be the first time it’s built me up then kicked me in the balls! Therefore, I’m going to take a cautious approach. I think we all should and chill on the premature euphoria. We still have a ways to go, but every journey begins with one step. Unless you’re in a wheelchair, but you catch my drift.
Other than that, today was a textbook spring. We made a new low, there was no real follow through to the downside after ho-hum earnings and BOING! Just like we said last time. Unfortunately though, I had given two scenarios of what to expect with earnings. I was hoping for door number 1, but we got door number 2. Door number 2 was the scary door, door number 2 caused a lot of number 2 yesterday after hours and today pre-market. YIKES!
I wanted to mention something before I continue with the spring business. This may be something good to look for if you ever find yourself in this position again. On Monday I was having a private conversation with TD123 on StockTwits. He pointed out the crazy block sizes on the bid and ask from NASDAQ and wondered what was up with that? I was just as baffled as he was so we put our heads together and… only made things worse!
Really though, typically the block sized are into the hundreds and less, but we saw blocks on the bid into the 10k range and the ask was usually twice the bid. Something was definitely up Monday. Tuesday we watched and it happened again. When the daily short percentage came out Tuesday it was a whopping 80%!!! The thing is, especially for Tuesday, for as big as those blocks were the volume didn’t seem to agree with the gigantic sizes being posted. Not to mention, with 80% short on Tuesday, it didn’t seem to go down in proportion to that amount of shorting. I told TD123 it could have been market makers spoofing the block sizes.
I know, I know, another creepy covert dark pool sounding thing, but its true. It’s illegal, but it happens. Here is a link to see with your own eyes. Basically market makers but up big block orders to “spoof” a big buyer or seller coming into the market. Once retail, or in more cases algos because they are programmed to look for abnormal block sizes, take the bait, they quickly cancel the order and fill the victim. They are manipulating the orders to drive the price a certain way. The funny thing is, what they are doing is the exact reason dark pools were created to prevent institutions from causing. Market makers are placing large fake orders to affect the price, where as dark pools are so institution can hide their large orders as to not affect the price. Anyway, in this case, it seemed like the largest orders were on the ask, which made it look like a big seller exiting before earnings, and hence the price went down.
The other thing on Tuesday was that 80% daily short. That’s just unreasonable! I was telling TD123 that daily short interest can be misleading. Another trick market makers do is short to drive the price down, but then immediately cover. Again this entices retail to be bearish, further driving the price down. The issue is that all the shorting the market makers are doing is recorded in the short percentage, but since they immediately cover, they cancel it out. However, just the fact that they shorted counts toward that percentage, so shorting is counted, but not covering to offset it. Here is a link if you don’t believe me. In fact, here is the pertinent paragraph from that link:
After considering all that, I came to the conclusion that Monday and Tuesday was a whole lot of market maker shenanigans to bring the price down. The harder question to answer was why? To that, I suggested that there may be orders being placed in dark pools to cover or buy before earnings, not sell. It makes sense because even though these dark pool transactions are made in private markets, they still use the quoted prices in the public markets. That was all speculation because we won’t know until we get SI and dark pool data, which will be in a month, but after today in retrospect, it suddenly seems more plausible.
Ok, back to springs…
So, was this actually a spring?
A few things happened today, each of which played their part, but none of which I think is the underlying reason for the rebound.
- Was it because of a good earnings call? No, because it wasn’t a good earnings call. It wasn’t that bad, but certainly nothing there to spark a rally.
- Was it because they mentioned a partnership before next quarter? In my opinion, that was a carrot on a stick. 1) If they have a finalized deal, why not announce it now? 2) If they are in the middle of negotiating a deal, why did you say anything at all? If that falls through, you just made matters 10 times worse. 3) They are buying time. In my opinion its number 3, but never-the-less the market loves a good rumor.
- Was it because the sector was up? When has SGYP ever been up because the sector was up? It’s usually the other way around.
- Was it because Trump didn’t crush the sector in his healthcare speech? This was already rebounding long before he ever took to the podium.
All that may have had an affect, but the fact is, we were sent to the woodshed and made a new all time low, then took a Mike Tyson upper cut after earnings and after that beating, we still got up. When you take that kind of abuse and there is no follow-through to the downside, it’s a pretty good indication that you’re not going down… so you go up.
It will be interesting to see in the next two SI reports if there was a larger decrease in short positions. If so, then I will be very confident that this is what we thought it was… smart money ready to take it higher. Of course, by the time we get those reports it will be after the fact, but it will be validation that we are on the right track and this is all the working of manipulators.
Simple, we need follow through. Typically, after a spring the price retraces to retest that support line. Which is $1.68 in this case. Yeah, I know, not again! However, here are some words of encouragement that I posted last time from the book, Trades About to Happen: A Modern Adaptation of the Wyckoff Method:
So, he is saying that when the breakdown below major support happens on low volume, a retest is less likely. This breakdown was definitely on low volume, so according to that we may not get a retest of $1.68. For example, on that chart above the quote you see the breakdown happened there on 3/10. The volume was high there and then on 3/22, it retested that support line. In our case the breakdown was on some of the lowest volume ever. So, maybe we wont get a retrace like that chart did. On the other hand, he didn’t say it won’t, just that it’s less likely.
Also, if we end next week higher than this week, or at least still within the main trading range, then I will update the weekly chart to say we are now in Phase C of the Wyckoff phases. The one I posted in the very beginning still says Phase B. I want to give it another week to make sure. Here is that Wyckoff go by chart for reference to what the phases look like:
Again, after that spring on the chart, you see the test. According to the text above that test is less likely to happen, but if it does retest $1.68 and holds, that would be a GREAT time to add to, or take a position.
Things can still be choppy and volatile, and there could still be some scary moments because there are some looming fundamental things that will keep us on our toes, but I hope this little series and a good bottle of Bourbon is helping you stomach the chaos. According to the BOP we are still bearish, this much stench doesn’t come off in one day. I apologize for some bad calls along the way, but this beeotch is tricky. Never-the-less, the route so far may have had it’s twists and turns, but the destination hasn’t changed and, to this point, it’s all good in the hood.
P.S. By the way, I forgot to mention that this week did confirm last weeks reversal hammer. Also, on the daily, not only did we close above the 20DMA, which has been a beast, we closed above the 50. Woo hoo!