Marketwatch.com recently detailed the woes of a trader who suddenly found himself with a loss of $106,445.56 on a short position in KaloBios Pharmaceuticals (KBIO). Joe Campbell shorted the stock after the company announced that it was winding down operations because it was running out of cash while developing two potential cancer drugs.
At first, it sounds like a good bet. But quite often the chart of the stock will tell the true story – you only have to pay attention.
KBIO had been showing very regular spurts of high volume on up-close days. These spurts were not likely the result of various small traders making very coincidentally regular purchases of the stock, hoping for a positive regulatory announcement. With a larger, better known stock, institutions could be building a larger position over time.
But with a small drug company, it most likely came from one large investor or institution with explicit knowledge of the company and its situation. A company like this will not turn worthless overnight. It will still likely have valuable talent, technology, and possibly patents. In other words, an acquisition target. Or, someone may have been working to control the company.
So when looking at this chart, Mr. Campbell should have thought about the risk/reward level, and outcome possibilities, of shorting the stock. The chart was clearly telling a story, but not everyone was listening.
Finally, the actions of the behind-the-scenes player(s) came to light and the stock jumped 400%. Poor Mr. Campbell suddenly owed $106,445 on a margin call.
The details of what happened are here: KaloBios soars 800% after Martin Shkreli takes control
Before you pull the trigger on a new position, especially a leveraged one based on shorting the stock, or using margin or options, look at the volume patterns. Volume patterns are the footprints of large traders and institutions. Ignore them and you too may experience a costly lesson.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, please click on the following link: www.markettamer.com/seasonal
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