Magic Formula?

Okay, I’m intrigued. Spent a few months working in securities law and got a glimpse into the world of penny stocks, so maybe this seems like a particularly good strategy to get familiar with. Sounds like the players come and go, but the pattern lives on. So, I’m going to explore Timothy Sykes website and figure out what he’s doing.

Is This The Magic Stock Market Formula Or Am I Fooled By Randomness?

Yesterday morning, I got rid of my short in Dara Biosciences (DARA) at $5.15 for a decent profit but called it a pathetic exit. My exit turned out to be right around its closing price and I received several emails from people trying to comfort me, saying it wasn’t such a bad exit after all. But with today’s quick $1+ drop to $4, my call in this post yesterday for that exact kind of drop and my inability to hold and let the pattern play out, I began wondering exactly how similar are all these instances of this pattern? Sure my DVD is chock full of them (see an example HERE) and lately I’ve posted about them here, here and here, but maybe it’d be helpful to post them all together for once. Or maybe I’ve been staring at my computer screen far too long and I’m Fooled By Randomness?

Here are some recent examples of the pattern that’s haunted me for years, you guys be the judge:

 

 

 

The pattern cares little about what the overall markets are doing, isn’t exactly the same each time, price-action or volume-wise–it’s more of a general trend, it doesn’t discriminate by microcrap company—these are just the latest four in the last two weeks (last month, slightly higher priced COIN, SEED and AKNS displayed the pattern, which I wrote about here, here and here), the industry matters little—although three out of these four are biotechs, no does the exact price—just has to be low priced and each has its own “special” story, but in every case, message board pumpers claim “somebody knows something” and fickle day traders are involved long and short. Other than SHZ, all have been in serious long-term downtrends (hence my tired midget analogy) and probly the reason why SHZ is holding up better…for now at least.

I wish I was good at buying on the way up, but I’ve learned to accept the fact that I’m better at shorting on the way down. I definitely don’t have it all figured out, if I did I’d keep it all to myself and buy some nice little island like Iceland, but over the years, playing this one pattern has made me $1 million-plus, the top ranked short bias hedge fund manager from 2003-2006 (by Barclays) and now the top ranked trader/investor on Covestor. In fact, my oft-discussed losses came only when I strayed from this pattern. So, to those who say I only got lucky during the bubble, why don’t you suck on this for a while. Digest it. How does it taste?

Let’s hear what you guys think!

Excerpt from another article by Timothy, to show the pattern. A Shining Example Of Why Short Selling Pumped Up Penny Stocks Rocks!:

So I’m gonna keep playing and talking/writing up a storm about patterns like (IDMI)—ideally, focusing purely on them because they off the best risk-reward trades in the ENTIRE stock market. Sure, they’re scary, so it’s just gonna take practice and knowledge to get you guys comfortable playing them. Maybe I’ll get better at buying the initial breakouts, waiting long enough, and shorting the breakdowns, but I wouldn’t count on it. I’ve simply got too many other things to do right now, namely, writing, blogging, vlogging, podcasting and cutting through all the BS in finance. It’s a full-time job. Trading these patterns will always be up there, but remember, they’re not very scalable (no way to short more 1 million shares of IDMI, so $3mil is the max on this one, so apologies to the rich bastards out there who are only interested in scalable strategies, this isn’t for you), aka ideal for individual investors and traders.

So take a look at this annotated chart and learn. Depending on price action, I might re-short (IDMI), c’mon bounce you POS!

UPDATE: Couldn’t help myself, re-shorted 800 shares of IDMI on the bounce at $3.18, covered within 10 minutes at $2.95, easy, easy $150ish. Newbies: I don’t advise shorting late morning spikes, they can go further than you expect and sometimes even turn a stock completely around (rare)…this is a true POS company though, so I would have no problem adding on the way up–that’s right Livermore zealots, I average up!