Small caps offer some of the best opportunities for enormous gains…
But they also come with high risk.
Investors and traders search for ways to minimize risk and maximize returns.
Heck, it’s the name of the game.
And we found an interesting case study within our TrackstarIQ Data today.
We want to show you how this tool gave a signal before the stock took off again today.
SemiLEDS Corporation (LEDS) first hit our radar in early May with a massive surge in interest among retail traders.
Things quieted down for a while…until last week.
So, what made this bump so significant?
Analyzing the data
I want to first start you off with a price chart of LEDS.
The company reported earnings back in early April, making them a non-factor in this situation.
What occurred was a common theme for this year – Reddit traders.
We’ve talked about how short-squeezes work in our recent article about Workhorse (WKHS).
An added feature here is the low float.
LEDS only has 2.43 million shares available for trading.
Normal days would see between 50,000 – 500,000 shares change hands.
16 million shares traded on May 4th, shortly to be outdone by over 159 million shares on May 6th.
And get this – almost 600,000 shares are sold short.
That means 85x the amount of shares available to trade transacted in one day!
Where TrackstarIQ came in
Our data shows a slight surge in searches on May 28th, the same day that the stock took its “next leg” higher.
We then saw huge interest on June 4th, last Friday when shares shot up as much as 90%.
But it wasn’t just retail investors looking up the stock.
Interest amongst institutional advisors surged as well.
Now, we can’t just take the increased pageviews as a buy signal.
It needs to be taken in context.
Because after a massive run, we need to know if will it continue?
And while we can’t know for certain, we can create a scorecard of bullish and bearish reasons for the trade.
So, let’s list them out.
Bullish
- Short float remains high as does the low float
- Volume increased into the Friday close
- Friday’s close was the highest weekly close since 2013
- Search volume spiked
Bearish
- Shares didn’t finish near the highs of the day
- The stock was already up over 450% since early May
- Volume wasn’t as high as it was in early May
- The financials are abysmal
Listed out, it’s tough to say whether shares could have anticipated the spike in price today.
That’s why traders rely more on risk management than anything else to turn a profit over time.
They pick out their entry points, profit targets, and stop-loss levels before entering the trade.
This keeps the decision-making mechanical and free from emotions.
Our hot take
I want to point out that what we discussed here is trading, not investing.
Investing relies on believing some aspect of the company has value.
The price action here is technically driven by orders not based on the business itself, but shares available to trade.
It’s important to recognize the difference so you never use one to justify the other unnecessarily.
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