Market Assessment – As of Thursday, July 28, at 11:45 p.m.
We hope you read our Market Assessment on July 4th and had the courage and good sense to take advantage of the incredibly cheap prices that abounded at the bottom of this Bear Market. The Market (the DOW) is moving well, and there are lots of bargains still abounding.
Two risky stock categories that got incredibly cheap are the BITCOIN stocks and the Marijuana “Pot” stocks. BITCOIN had a value of $67,000 on November 7, 2021 and crashed along with the DOW and we think it bottomed at about $19,000 on June 17, 2022, and we now believe it’s headed back up.
One stock that we like is Riot Blockchain (RIOT) which we featured as a Stock of the Week on July 20. We believe it is in the process of a “Short Squeeze”. And I have a large (for me) position in the stock and expect it to go a lot higher. It is a Very, Very Risky Gamble, but I am a gambler at heart and like it when the odds are in my favor.
What makes it interesting is 1) We think BITCOIN bottomed and is headed higher and 2) All the Bitcoin stocks are moving higher, and 3) Riot is in a “Short Squeeze.”
Every shrewd investor and his mother are buying the stock because of that fact…and they realize a lot of money can be made if it’s for real.
A “Short Squeeze” occurs when the float of a stock is relatively thin and there is a large number of investors that have sold the stock “Short,” meaning they sold stock they didn’t own (borrowed it from their broker) at a certain price, hoping to make money by buying it back at a lower price and pocketing the difference in price as their profit. But if things change, like the price of Bitcoin rises, instead of continuing to fall, the stock might begin to rise. When that happens, the shorts begin to cover, because they want to minimize their losses or lock in their gains. Things are “Ripe” for a “Squeeze” when the Shorts represent a large percentage of the Float, which is the case here, with 29 Million Short, and a Float of 124 Million = 21% of the Float.
For instance, if an investor sold short “shorted” RIOT at $6.00 on June 7th, he would have made $2.00 per share if he covered his position (bought it back) at $4.00 on July 1st. That means that he would have made $2,000 by selling 1,000 shares short at $6 and covering (buying it back) at $4.
However, if he got greedy and didn’t cover at $4, and the stock went to $8, then he has a paper loss of $2,000 – $2 per share. At this point he becomes concerned, and maybe very nervous, because he knows that if he doesn’t cover, and the stock keeps going higher, he will lose $1,000 every time it moves up a point. If it got in a short squeeze and went to $20, he would lose $14,000 on a $6,000 investment. If you are short, your potential losses are unlimited. In a short squeeze all the shorts begin to cover, and all the circling sharks buy the stock because they know it’s in a Squeeze and, lo and behold, it can rocket up, like the chart of Tilray (TLRY) $3.65, below.
We gave Tilray a Buy Rating at $7.36 in our November 23, 2020 issue of our Market Letter because of the following: 1) Barron’s had a story featuring the stock 2) It had a small amount of outstanding shares and a small Float, and 3) The Shorts were a large Percentage of the Float — maybe even more than the float….but I can’t remember the exact figures. The stock Skyrocketed from $7.36 to $65.00 within 3 months — up 743%.
If you look at the 2 Year and 3 Month chart of RIOT, you can see that it traded 50 Million shares one day at about $3.00 per share, back in July of 2020 for no apparent reason. I remember the trading, and there was no news to explain it. But if you look at the stock price of $79 in February of 2021 – up 2500%, it all became clear. “They” moved it up. And we think “They” are going to move it up again. We are counting on it. Keep in mind – We could be wrong-but I doubt it. We have been wrong before.
Nothing in this article is Investment Advice, it is based on stock chart patterns and is pure conjecture.
Joe Cotton has won three National Stock Picking Contests with yearly percentage gains in excess of 96%. His 2020 Wall Street’s Best stock contest winner was Inovio Pharmaceuticals (Symbol INO) with a 742% 1-Year return.
This article is not investment advice, nor is it in any way to be construed as investment advice. For Investment Advice consult a Registered Investment Advisor or a Certified Financial Planner. Joe Cotton’s website is www.cottonstocks.net. NKY’s Joseph W. Cotton is publisher of the market newsletter, Cotton’s Technically Speaking. He is a graduate of Xavier University, a former bank manager and credit analyst, and a former Fidelity Investments registered investment representative. Contact him at email@example.com