ZITL's chart has taken a shape nearly identical to that of IOM.
In my post #723 of this thread, I did say it would go like IOM and
ANCR.
All three stocks follow the "herd curve"
What is the herd curve and when do I short?
A herd stock is one which keeps going up beyond reason. The main symptoms are:
1. Nearly everyone has bought the stock.
2. People sell farms, take loans etc. to buy this stock. Students buy this stock on credit cards.
3. Any doubts expressed about the stock are shouted down by the
faithful.
There are more, but the above should be enough to identify one.
The most notable in recent history are PRST and IOM.
A "herd curve" happens due to everyone buying the stock coupled with short squeeze. I divide the herd curve into three phases. The first phase is the ascent. The stock goes up, rests and falls a tad bit. When you think it's going to fall further, it simply reverses and goes up further. This phase continues till everyone who wants to buy this stock has bought it. If the person running the company is smart enough, s/he can prolong this curve for a little longer by issuing more shares -- as was done in the case of IOM. It is best to raise money by issuing stock when the frenzy is still young.
The second phase is the peak. This happens because there are almost no shares floating. Everyone is keeping thier shares. Short squeeze and pure demand and supply push the stock to rapid heights. The stock doubles and often triples in two or three trading days. Now the big boys dump thier stocks. An equally rapid fall ensues. This is almost always reversed into a smaller peak. If you have the shares in hand, this is the time to dump. The first peak although theoretically the most profitable point to sell, is nearly impossible to predict and often hard to get hold of. This is partly because the peak price happens only for a short duration.
Shorting must be done at the end of the second peak. This will save you the gut wrench that happens to people who short at the end of the first peak when they watch the second peak happening.
The last phase is the decay. You can sit back and relax watching your short make money. You will want to watch for waterfall effects during the decay. When you suspect a waterfall, you short some more and cover immediately after the waterfall. Option players can make real big money if they can predict this accurately.
So what is the waterfall effect anyway?
Waterfall effect happens when three trading days have lower highs and lows and the close is at the low. This is followed by a sharp dip the next day. If the dip causes the stock price to go to 50 percent of its original price or less, it's called a sharp waterfall. Else its called a mild waterfall.
Note that three trading days of lower highs and lows do not necessarily result in a waterfall. Also, three is an average number. The actual number of days can be more or less. If one can predict this accurately, a lot of money is to be made, especially in options.
-Cadaver |
