When I shorted 2,500 shares of (KBX) at $1.79 yesterday morning, I had little idea it’d drop 20% over the next 24 hours. No, I shorted it because its chart had gone vertical—meaning it was close to peaking—it was the third big up day in a row and the price/volume had already begun to fade the day before. Experience teaches me that it’s extremely difficult for a stock on that third day to finish green, let along up 10%+ because since it’s up soooo much sooooo quickly that buyers begin hesitating, wondering if they can buy in lower, longs start thinking about taking profits and short sellers like me begin wondering if we should pounce to take advantage of this natural cycle. So I took the morning strength as early short sellers getting squeezed, aka temporary.

Unfortunately, the stock also had three negatives in my book—it’s a gold play—influenced by the price of the gold itself, aka not an ideal penny stock hype play, sure it’s gone up a lot but it’s only up from $1.25, aka not much more than 40 cents short-term downside and it’s on the AMEX—ridiculous price spreads between the buyers and sellers and market maker games. And yet I shorted in the morning no less because a) the volume had faded substantially and b) sellers took out a big block of 15k at $1.79, I didn’t want to miss out on any sudden price collapse form it going green to red on the day

Within minutes, I was up 5-7 cents on my short, but so what. The spread was ridiculous $1.72 x $1.77 so if I tried covering at the ask, I’d really only be up 2 cents. So I waited. A few minutes more and the stock bounced, but the volume remained weak and I was comforted by big sell blocks all in the $1.80, $1.81 and $1.82 range. Suddenly, a wave of selling hit, bringing the stock to $1.70 x $1.77. Ridiculous spread again.

I said to myself there’s only 4 hours left until the Fed comes out with some announcement that will influence the dollar and gold, would I want to stick around for that? Hell no, not in a less-than-ideal play that could also just keep going up gradually, squeezing shorts along the way like fellow $1 to $2 player MMTIF. So I put in a buy to cover order at $1.71, just above lots of big buy blocks at $1.70, the price that was resistance the day before (so theoretically should now be support). Within seconds, I got my whole buy to cover order. I knew what that meant—it was going lower. Some market maker was glad to sell the shares I was buying at $1.71 because he probly had big sell orders that he knew would take out $1.70 and maybe more—considering then it’d be near unchanged for the day and probly go red.

But I had my $180 profit, so I didn’t worry about it. It was a solid entry and exit and even though this stock continued to downtrend gradually until it really crashed to the $1.50 range as the Fed cut crushed gold prices meaning I basically left $500 in profits on the table, I was satisfied. Remember, I look for volatile stocks because since I KNOW my timing will be off, I just look to hop on and off along the way. Mission accomplished.

Today, I saw … [visit site to read more]

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