$DRYS (NASDAQ) from $4.75 to $120 in 4 days
This week we witnessed one of the most epic parabolic squeezes I’ve ever seen. nasdaq:drys squeezed from $4.75 to $120 per share in 4 days. Talk about a hot penny stock squeeze! That is a 2500% move and it was an incredible sight to see. What is usual about these types of squeeze is what happened on Wednesday morning when the stock was halted on a T12 halt. I’ve heard “T” and “12” referred to the number of times it will feel like you’ve been kicked in the teeth.
Officially, the stock was halted while NASDAQ stock exchange required more information “Halt – Additional Information Requested by NASDAQ Trading is halted pending receipt of additional information requested by NASDAQ” (NASDAQ). Typically when we see stocks run 100-200% it’s because there is a fantastic catalyst.
When $DGLY ran from $3.00 to $33.00 it was because there was widespread belief that the maker of Body Cameras would receive record breaking orders if congress required all police officers to wear body cameras. Legislation didn’t pass and the stock price came back down.
When $LAKE ran from $2 to $20, it was because investors believed the maker of biohazard suits would see record orders due to the Ebola outbreak. In the case of $DRYS, there was no material or fundamental news to account for the 2500% move.
Resumption on Thursday at 10:30am
When $DRYS was scheduled to resume trading at 10:30am today, it was after the company made an announcement of a secondary offering. A secondary offering is sort of like the Initial Public Offering (IPO), except that it occurs long after the IPO.
They are similar in that they are an effort by the company to raise money by selling shares on the open market. When a company does a secondary offering they are diluting the value of their stock by selling more shares. Lets say for example, an investor previously owned 1mil shares of a stock with a 10mil share float.
That means that investor owns 10% of the outstanding shares. If the company does a 10mil share offering, that investor suddenly owns only 5% of the float and the value of his shares will likely decrease quickly. According to an article posted on Seeking Alpha “DryShips will end up receiving $20 million in the offering, and potentially up to $100 million, this is a massive amount of dilution for investors” (Seeking Alpha).
When $DRYS resumed trading it promptly dropped 79% halting 4 times. It ended the day down 90%. Investors and traders alike will have likely experienced massive swings in their P/L while holding $DRYS. Personally, I made less than $5k trading it and I missed the two biggest days because I was out of the office.
Prepared for the next Parabolic Trade?
Over the last 2 days we have seen a lot of sympathy runners. That’s when a stock in the same sector starts to squeeze on sympathy. We say massive moves on $GLBS, $SINO, $EGLE, $TOPS, $SHIP and several others. The most important thing for traders is that we recognize that these patterns in the market will happen again and again.
The best thing we can do is learn to trade the best setups so we can fully capitalize on these opportunities! That means applying the Momentum Day Trading Strategies to stocks with low floats and high relative volume. That combination can result in explosive moves, as we’ve seen this week!