The Internet & Casino Stock Report
June 24, 1999
Lessons from the OTC:BB
One of the primary reasons for this newsletter is present various trading
mistakes in the hopes that you will not follow in my erroneous ways. In all
actuality I covet my losses just as dearly as my profits. Losses are
inevitable but the way one handles a loss is the most important part of the
equation. The fact is the more you know about a stock (i.e. support levels,
resistance, and fundamentals) the better your chance for successful. This is
why I consistently trade the same stocks.
One of my old favorites popped back onto the trading screen today; SA
Telecommunications (STEL). The company is bankrupt and whether or not the
company actually has assets or continues to operate is a matter of
controversy, and frankly irrelevant. The volume and volatility create
opportunity for the daytrader. A little history: In April the stock moved
from roughly 2 cents to 68 cents in a matter of three days. As I recall I was
able to take a good chunk out of the middle. The stock eventually fell to 5
cents within 1 week and has been there ever since. Well, today the rumor
resurfaced, AT&T to buy the company's assets...a trader claims he has spoken
to a PR representative at the company, etc. Lies, hype, pump and dump but it
hardly matters where there is risk there lies opportunity. When I determine
the stock is moving on increasing volume the ask is already 0.13 (+126%). Now
one needs to make a quick decision. I recall that the last time I played this
stock it ran over 3000% in 3 days. Now the questions are: How many people are
in? Am I too late? What is the probability these early buyers have enough
profit to sell and create a "shake out" or a price decline? Is there enough
time before the close for other players to jump in for the gap up tomorrow?
What stop will I use to get out if it turns against me? I decide to risk 25%
which is typical and I'm in, this puts me at bid 0.095 to exit...Now I own
the stock and it suddenly stalls, oh boy! I cruise the penny stock websites.
The unexpected...the guys who lost money on the stock in April are bashing
STEL...thereby scaring out new players. Do the market makers know this
information I wonder? Sellers come in, I'm watching Level II quotes..are
there more buyers or sellers? Are they selling at the bid or buying at the
ask and in what quantities? The spread is wide 0.10/0.13, nearly 30%, damn
this could be a dissaster..MM's manipulating the stock as usual. Bid 0.10,
bid 0.095, mental stop hit...I'm out..lost 27%...damn! All trades at the bid
now, everyone is selling out...I feel relieved..it's over, this stock is down
for the count..but wait here's something interesting. Some guy just placed a
trade for 300 shares at the ask. 300 shares, that's $30 (300 x 0.10), the
commissions are $30? What the @*#^#&!! The herd sees a buy at the ask,
sentiment shifts all buyers now at the ask of 0.12, 0.13, now 0.14. This guy
probably owned 100,000 shares ($10,000) and just reversed the trend with a
beautiful move of psychological deception. Pure genious! Well today I bought
the high and sold the low. Will the stock soar tomorrow, who knows I'm out
and I can sleep well, I'll be back to play again tommorrow..why? becuase I
limited my risk and guess what? Next time I'll have a new trading weapon in
my arsenal. And so goes another trade on the OTC:BB
Good night all..
traderjohn.com
The information provided above is believed to be accurate. Earnings and
revenues may be estimated for the purposes of evaluation and comparison. This
letter is a general circulation publication. We do not give investment
advice, nor do we at any time manage or direct the funds of any person or
company other than our own. Positions contained in this report are the
publisher's personal trades, and are not intended as trading advice for
readers. This report is issued solely for informational purposes and content
is not to be construed as being an offer to sell or a solicitation to buy any
security. We do strongly recommend that readers contact their personal
investment advisor or broker for advice pertaining to any investment
questions they might have. The publisher is not a registered investment
advisor, but rather a news editor and a stock trader for his own account.
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