Is there a stock pick that you recently saw run up big time or jump suddenly and wish you had pulled the trigger and bought it before? Now that you are stuck watching, you don’t want to buy in too late and get left holding a stock at the peak of its rise. You can pick a “Sister Stock” that relates to the one that spiked, but reduce your risk of incurring a massive loss.
When a company suddenly spikes and goes for a multiday (single day runs can work too but you want to be careful) run, you typically want to reduce risk and avoid buying in after the initial pop. The better option instead is to see if there is any major news around the industry and trade a similar company.
For example, in November everyone and their mother heard about the Shipping Stock $DRYS. Starting at a few dollars a share it ran over the next few days and to my surprise, rose to $16 over one day on a Friday, then the following week it ran up even more to around $50 on Monday. Wanting to get in on the hype people started to buy in here even more, retail investors wanted to jump in and get rich quick putting it all on the line. At first it looked hopeful. That Tuesday the stock ran up even more running well up over $100 a share before noon. Then it was halted. The SEC investigated to see what was driving the price and people realized it was nothing more than hype buying and low float. Once the halt was removed, down she went. Despite having an occasionally recover spike, $DRYS fell the rest of the day and continue its fall back to reality the next few days as well. Two days after its massive run up of over $100, it was back under $20 with no hope of recovery. All those who bought at $80+ were left with a -75% in their portfolio.
So seeing Dry Ship soar up on no real news, investors looked to do the same in similar stocks. Let’s look over at $SINO, a global shipping stock that I bought and sold during the Dry Ship hype. Lagging behind, movement really didn’t begin at $SINO until a day after Dry Ship’s big run began. $DRYS saw its initial spike on 11/10/2017 and continue its trend higher, $SINO didn’t start moving until 11/14/2017 and no real spike until 11/15/2017. You can then see once people started to buy in bigger on DRYS, SINO followed suit with its move.
The best part about this trade was you could see where to exit. DRYS began to crash on 11/15, and investors began moving their funds over to recover hefty losses by pumping SINO. After seeing what happened to DRYS, you knew that this would not last long. Selling into the emotion and fear of others missing out, you remove the risk of being left holding a bag and also profit on the hope of investors flooding into a trending stock that spiked over 1000% in 2 days.
Other examples of this phenomina include:
AMD & NVDA
T & VZ (Look at 1/5/2017, both off big overnight leading into 1/6)
AKS & X