Smallcap Swing Checklist

 

Alright...so some people get upset for even discussing smallcap strategies like this. Because on a relative scale to the rest of the market, smallcaps are easily influencable. By that I mean, if enough retail get wind of the same idea on a lower float/lower volume smallcap name, it can materially influence price action and ruin it. So in the past, I've been super particular about what I tweet about, and when, not because I "want it all for myself" or am greedy or a jerk, but for the simple notion it's an undeniable fact that the masses can change price action on these type of names. The ones with insane volume it matters much less, but still influencable. Is what it is. It's just a fact. So one of the main reasons for even mentioning this strategy now, is because recently I'm transitioning into more largecap trading, for a number of reasons. And it's refreshing I'll be able to document and discuss all that on here with you guys carefree moving forward, because I'm just not that important, and when you're trading stuff like CRCL or UNH or FIG or UVXY or whatever....it just simply doesn't matter. It's not a retail presence guiding the action, obviously. I can say or do whatever I want, and no matter how many retail eyes see it or act on it, it's not affecting the price action much at all. So that's something new, and completely contrary to everything I've traded in the past, I've made a living off of capitalizing on inexperienced retail traders. I have been able to do that well, because I was one of them for a long time. So I know how they think, when it's evident they're holding onto a lost cause, how they react, and what's coming next. Which sounds bad, but it isn't. It's just another part of the game, and when capital is limited, you go where you need to go and do what you need to do. Plain and simple. And make no mistake I will continuie to trade smallcaps, and selectively tweet about them, but it will just become a smaller portion of my day, rather than the focus. I've got myself in a position to expand, and that's what I intend to do. But for anyone in early growth phase, or a soleley smallcap focus, this can be helpful. I'm not sharing anything revoltionary, just some common sense that might not be so common. And at the end of the day, 9/10 retail traders are so goddamn lazy that they probably haven't even made it this far into the post. If you don't tell them what to buy and when to sell within the first few sentences, they're gone LOL. So again even sharing this now, I don't think it ruins much. History repeats itself, and retail traders will always be inherently lazy. If you're not apart of that group, you will succeed. 

So that's the quick backstory on the inspiration for this post. The info I share will still be relevant and work. Would have been this way regardless, but since I'm shifting lanes a little bit, I figure why not try and help some others out who are trying to better themselves. So without further ado, let's talk about a not so common smallcap strategy that works well. 

The star of the show, and the focal point of my tweet: holding names when everyone else has lost interest. This has made me more money than you can imagine. I was inspired to write this now, because there's one I'm still short, and it's paying handsomly, as so many of them do. That's LIDR currently, and SNGX an honorable mention but less so, which I'll explain in a bit.

There's a specific set of names that turn up, it's not every day, but still fairly often. At least a couple a week. Where they are alll but guaranteed to pay you many days after the "exciting" day. I'll walk through specifically what about them gets me smiling. From the share structures, to the fundamentals, to the superficial news, and everything inbetween. Best part about this? I'm not trying to teach you organic chemistry. Although I do have a degree in Biology and Biochemistry! (I still laugh at how I ended up owning restaurants and trading, life is funny sometimes.) In all seriousness though, this stuff is not difficult. But the art of simplicity and logically thought out unbiased reasoning, is ironically in and of itself...sometimes difficult. But it doesn't need to be. The market can make us crazy, and thinking crazy. Don't let it. The sooner you can approach it like a rock with zero emotions, the sooner you'll find yourself collecting some very nice paydays. 

So let's walk through this recent example LIDR. I'm still currently short this over the weekend from Monday when I was tweeting about it. The weekend is the best time to hold overnight, assuming the borrow isn't costing you a fortune, because the few that tried not to forget about it during the week? Now they DEFINITELY forgot about it come Monday morning. And we see some of the best post-momo fades from Friday into Monday morning transitions. Make a mental note of that, and look out for it. How many momo names from the prior week gap down on Monday the following week, especially ones than ran recnetly on Thursday or Friday. It's substantial. But there's attributes that need to be there, and things that need to NOT be there when doing your research, which we'll get into more in a little bit. 

This tastefully narratated picture above is a tale and timeline-of-thought as old as time in smallcap land. It happens over, and over, and over, and over again. And so few are willing to be there to see it through, it honestly doesn't even matter that I'm highlighting this for you. 9/10 still won't do anything with the info, and still get shaken out or bored long before it comes to fruition. 

So. What about this name made it a good candidate for this strategy? Great question, I'm glad you asked. Let's talk about it. 

Ticker: LIDR. Float: ~20M. News: "Nvidia brought our automonous driving vehicle tech into their incubator, woohoo!" 

Volume and current standing status: 

Starting from the previous week where the fun started, and a picture now. 

So right off the rip, here's the series of questions going through my head once I've become aware piggy has made an entrance and flying high. 

1) What's the float? Answer: ~20M. Awesome, awesome, awesome. The larger the float, the more these pigs can just bleed and bleed and bleed, and the more size you can comfortably use, and the less likely you are to wake up to a "get fucked" gap up. Micro floats and really floats under 5M for me, are less appealing for this strategy. Because you get ones like CYCC where it looks dead in the water, then all the sudden you wake up to a $10-20 gap up. Retarded. They did it like 3 times last week. Yes, it fades right off 99% of the time, but it's something you just don't even want to expose yourself to. Forget them, not on our list for swing cadidates. So at ~20M float? My eyes light up, I'm all over this as a swing fader potential. But, we're not sold yet. We don't know anything else, I need more info to understand the story. Understating the full picture is a 100% requirment to green light the idea. If you don't know exactly what's going on, don't even think about swinging it. 

2) Where did it come from? Answer: $1. And we're at 5-6 now? Ok. Love that. But, still need more info. 

3) How did we get up here? Answer: PR stating that Nvidia has integrated them into it's autonomous vehicle incubator as they test their software. Got it. 

Now, we get a little deeper into the research phase. And just a note before going further, ChatGPT and other  programs like it have made this research process INFINITELY easier. If you're not using it to do DD, you're missing out. As recently as a few years ago when I stepped away, none of this stuff was available. It had to all be done manually line by line, article by article, question by question. It took a considerable amount of time. Now, you can type a multi-part question into the algorithm and have the entire end goal answer spit out to you in 30 seconds or less, it's wild. Super useful. So let's continue with the thought process as we're digesting this thing now and we'll incorporate this. 

4) Now we know the PR. Next, we need to determine if it's material, or buzzword garbage. So my immediate thought is "Is there any immediate or deferred revenue for the company associated with this PR?" Answer: No there is not. So we love that. What I'm doing here is looking for possible catalysts or scenarios that can add fuel or give legs to the hype. Question by question, I'm trying to rule out reasons for this news to have legs past the immediate scenario/the momentum day. Each box I can tick off of things that tell me the hype should dissapear quickly, the better. So here right off the bat, yes there's the Nvidia buzzword which is about the hottest catalyst out there right now, other than crypto treasuries maybe lol. But it lacked substance. And most importantly, it lacked money. This news had no immediate benefit to the company. 

5) Moving on logically, on the topic of money, what's their money situation looking like? Do they have any? Do they make any? Do they have the ability to sell paper and create any in an opportune scenario like this? Answer: No, they don't make any money. Deeply negative EBIDTA and literal non-existant revenue of 200K. So they're bleeding like crazy. There's warrant coverage, Active ATM, converible notes, and a shelf. (This as well is stuff when I learned, you had to go filing by filing to determine, and that's still the way I do it because the devil is often in the details, especially with convertible note maturity dates and other important dates, but there's even services out now that lay all this stuff out for you on a surface level, which is still helpful) This is a literal perfect candidate. The financials info you can get a quick snapshot of on like a yahoo finance type site, but I recommend and still do myself, check direct sources, aka go straight to BAMSec and check the recent 10-K/Qs to confirm. Takes 2 seconds and piece of mind you're using accurate data. Do that to confim the O/S and float as well. Make sure no reverse splits recently or anything else you might have missed in the 8-Ks too.

6) The new quick research tools part. Always just go step by step and it's not hard to write a story. So again off the bat, we know "LIDR (AEye) is included in Nvidia's autonomous driving program." Sounds lovely. My first thought now is, "Who else is in this program?" With a literal 2 second message into ChatGPT, of "Which Lidar companies are involved in Nvidia's automonous driving software?" it spits out this:

So I'm now thinking...oh wow. So it's not an exlcusive arragment of any kind. There's 8 companies right here, all Lidar competitors in the same field, that Nvidia has put into their incubator of road testing. Cool. So what appears like a big deal on surface PR and initial market reaction...you can see is looking like less and less of a big deal. Then we take it one step further, ask "What are the market caps of these companies?" and it spits out this: 

Oh wow again. LIDR is a little shitworm in this ecosystem? Meaning their ability to scale and provide at large to a giant like Nvidia is slim to nonexistant? Good to know. And they make no money so they've got no already proven concept that they're selling? Also good to know. And they've got 8 ways to the weekend they can sell stock, the only income source they have? Yet again, good to know. We went from what appeared to be an Nvidia partnership, to learning they are 1 of 8 companies competing to do the same thing more or less, and they're the runt of the shit litter by...a lot? And this doesn't even account for the Chinese and Japanese Lidar companies bidding for the same gig? Noted! 

You see the picture that's forming. If you knew all of that info and had this full picture painted in front of you, and you were short on Monday from 5 or 6 bucks...would you still want to cover at 4? Probably not, right? 

Everything stated above is a lot of words, but in reality, you could have put that picture together in under an hour. The simplicity lies in the ability to just ask simple obvious questions, working backwards to try and determine what you really want to know: "Is this real or is it nonsense." This one gave us a nice thick float, a ton of volume and range, and a really, really stupid, yet pumpable narrative that you could see right through with really minimal research. All the tools are right in front of you now plug and play, you just have to ask the right questions and be focused on the right quesiton tree. 

One final thought. Knowing this stuff is great. It's pretty basic stuff that anyone can do, and you can get a really clear picture of whatever you're dealing with. That said......when the volume is NUTS (the previous friday, and this past Monday), while this stuff matters, it doesn't matter at ALL in the midst of the chaos and when the entire momemtum crowd is circling. I admittidly said, Friday I took quite a few little paper cuts on it. I knew the truth, but the truth doesn't matter, until it does. So there's never any harm in getting involved on the front side of these moves, the harm lies in staying there when it's still not time, and you're letting your fundamental bias cloud your technical judgement. You can not fight with this shit. Take your little licks, and move on. And when it's actually time and you're right, be really fucking right. 

So in this particular case, Friday I lost on it. Fine. Monday morning wake up to that absolutely gorgeous 6s push at open, I'm back in there, and what I had a feeling would happen, did. My average is 6.07, I am still short, a lot. At this point in time, there is literally zero reason for it to go back up. So why would I cover?? Companies rarely PR multiple times within a week or two. It happens, but it's not wise. Packs less of a punch every time and gives away your hand that you're trying too hard. So I'm not really worried about a new PR anytime soon, there's nothing for them to say. My target exit is 2.50. In all reality, that's probably still too high for this thing, but there is some inherent value in the fact they're in Nvidia's software, which they actually are. So it's likely not going straight back down to 1 where it came from. But it's just a relatively meaningless thing at this time. 

In Summary: 

Ideal targets for this week-ish short swing strategy: 

1) Good size float ( > 5M is ideal)

2) PR that can be reasoned out with facts that it shouldn't have legs past the initial momentum

3) There's paper in place for the company to dump on the public

4) The company doesn't have revenue outside of said paper avenues,  making it extremely likely for them to use that paper

5) Pharmaceuticals are really good here, names like SNGX that come from $1 with "Positive Phase 1/2 clinical trial results" its absolute nonsense 99.9% of the time. This turd gave back 60-70% of it already on the actual run day so doesn't give a super enticing swing, but even there you're likely to get another buck out of it over the next week or so back to $2 or lower. 

The actual industry doesn't even matter all that much. What matters is your ability to ask the right questions, check the right boxes for a green light, and deterime with fairly good certainty that "ok....I see what's going on here." If you can get to that point, like I just reasoned out on LIDR, it's gonna pay you. I've done it time, and time, and time again. And will continue to do. We're just adding some new tools to the arsenal now. 

Alright that's a wrap on LIDR and why I'm still short. Hope it helped. 

- D