If You Don’t Know THIS Invest at Your Own Risk…
Dear Penny Stock Millionaire,
With all the recent volatility, it’s crucial to know your stock market history. The big market plunge last week wasn’t really unexpected. But the amount of opportunity surprised a lot of newbies.
People have misconceptions about market crashes. I’ll get into some of those in this edition of the update — along with why you MUST study stock market history.
Trading Questions from Students
The first question in this edition is a great example of why knowing stock market history can save you a lot of pain. Check it out…
“Does fear in the markets create safer opportunities for short sellers?”
You would think that’s the case. Here’s the problem …
These short squeezes have gone on much more than in the past. Again, study stock market history.
Here are two prime examples…
Alpha Pro Tech, Ltd. (NYSE: APT)
I mentioned APT in my post yesterday about the stock market crash. The company makes medical masks. There’s a huge demand for masks as the coronavirus spreads around the world.
During the Ebola outbreak of 2014, APT went from $3 to $12. Now — during the coronavirus scare — the stock went from $3 to $41. So it’s roughly three to four times more than the previous spike.
Short sellers think it’s easier, but it’s a trap. It’s even more dangerous than ever. I know many short sellers blew up on APT.
Here’s another example…
Allied Healthcare Products Inc. (NASDAQ: AHPI)
Again, study stock market history. AHPI spiked in October 2014 during the Ebola outbreak. Its biggest single-day move was 78% on October 9, 2014.
Take a look at the AHPI 10-year chart…
APHI chart: 10-year, compare Ebola spike to COVID-19 supernova — courtesy of StocksToTrade.com
Now look to the right on the chart. This time, with coronavirus, it went much further. But that chart still doesn’t tell the whole story because you can’t see extended-hours trading.
Here’s the APHI five-day chart…
APHI chart: 5-day, COVID-19 supernova — courtesy of StocksToTrade.com
APHI went from $4.15 to $66.99 in less than 24 hours. That’s sixteen times your money or 1,614%. It’s another example of a short-squeeze supernova.
In case you’re wondering how I know it was a short squeeze…
Short sellers are a lot like vegans. You don’t have to ask — they tell you.
Since short interest data is delayed it’s never very accurate. So I use a social media search tool to get an idea who’s doing what. I recommend it. It’s almost like a secret weapon.
Remember — it’s not an exact science. But when you study stock market history, you know what clues to look for.
“Could the coronavirus cause forced selling from institutional investors due to client redemptions?”
It’s hard to say. It’s just a panic at this point. We don’t know how bad it’s gonna be for the world economy.
If you’re new to penny stock trading, this question might raise more questions…
First, what’s forced selling? It’s just what it sounds like. An investor gets forced into selling off assets. It usually happens due to some kind of big or unforeseen event.
Next, what’s forced selling by institutional investors? When the stock market goes down enough, people get scared. Institutional investors get hit by client redemptions.
Clients invested in mutual or hedge funds want out. So they redeem their shares. These client redemptions can force the fund managers to sell off their positions.
So when stock prices are already low and big sellers come into the market, prices drop more. It creates a kind of downward spiral.
Come back to the present — again we just don’t know.
Both Tesla and Apple warned that the coronavirus will affect operations. Some of these companies won’t have the demand they’re used to. Especially in the Chinese economy. Also, Chinese manufacturing is off for many weeks.
Frankly, it surprised me the markets held up so well. Then, on Friday, I was surprised by the big bounce running into the close.
It looked like some sort of buying program designed to get everyone all excited. For me, I didn’t go long over the weekend. This is scary stuff right now.
Stock Market History Repeats Itself
Looking back at when the Ebola outbreak happened — it’s the same exact stocks. This outbreak is just bigger. At least study stock market history so you can have some kind of framework.
Also, I keep getting DMs from non-students and students alike saying…
“I’ve never seen anything like this.”
Yes, you have. You just haven’t studied enough. Study harder.
The Bottom Line
We don’t know what’s gonna happen with this market. Today the market’s trying hard to rally. And while we know the coronavirus will affect the world economy, it’s not clear how much. But I can tell you one thing…
My top students — those who are crushing it on virus plays — all studied stock market history. Or they were there the last time these plays were hot. Either way, a knowledge of stock market history is part of their skill set.
Wherever you are on your journey — whether trading or still learning — pay attention to what’s going on. Then do yourself a favor and study what happened in the past.
Editor, Penny Stock Millionaires