10 Jan Kodak’s monster gains show there’s a killing to be made by trading blockchain news
Investor insanity about bitcoin, cryptocurrencies and blockchain is in full bloom.
Those with trading experience have two choices: complain about the insanity or take advantage of the insanity to make money.
Those choosing to make money ought to make sure they have a proven methodology in place to control risk. It is easier to control risk in bitcoin- and blockchain-related stocks than in currencies themselves, such as trading bitcoin BTCUSD, -0.59% ethereum and Ripple.
Let me illustrate with a chart of a former Dow Jones Industrial Average DJIA, -0.09% stock that has produced a 220% gain in one day after The Arora Report issued a buy signal.
Please click here for the annotated chart of Eastman Kodak KODK, +59.19% This is the old camera-film giant that used to be in Dow until 2004. The stock represents the company that emerged from bankruptcy. Please note the following from the chart:
• The Arora Report gave a buy signal when the stock was at $3.80. At the time of the buy signal, the first target of $6.50 to $8.80 was given. We said if it catches the fancy of the momo (momentum) crowd, it could go as high as $17. As a risk-control measure, the stop zone was given at $2.73 to $2.88.
• A simple technique that investors will find useful to double their returns and control risk is to buy a core quantity and then surround it with trade-around positions. To The Arora Report subscribers, we provide a detailed methodology for using this technique. Along with the buy signal, the call was to add trade-around positions with tighter stops to lower risk.
• The chart shows that, initially, volume spiked but the VUD indicator was orange. This indicated that even though the stock was rocketing, there was net selling in the real time. Our separate algorithms picked up extensive short selling. Apparently short sellers did not believe in the rise. Short sellers were betting on the stock to fall back to earth.
• The chart shows that after-hours volume dried up but was still heavy relative to the time of the day.
• The chart shows that, in the after-hours, the VUD indicator turned green. This showed net real-time buying. Our separate algorithms detected a short squeeze. In a short squeeze, short sellers panic, and then buy the stock to cover their positions. This panic buying adds fuel for a further rise.
• The chart shows Arora’s call to take partial profits when the first target was reached.
• The chart shows the point when stops were raised to break-even.
• The chart shows the point where stops were raised to protect profits.
• The chart shows the point where the stops were raised again to protect bigger profits. By taking partial profits and raising the stops, the risk was controlled while enjoying gains in the explosive move.
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According to the Quantitative Screen of the ZYX Change Method, the fair value of Kodak’s stock is about $3. The news that Kodak is using blockchain for managing digital rights to photographs and issuing KodakCoin is significant but does not justify the large move. For this reason, we specifically stated that this was a very short-term trade and not an investment.
Every day brings new rumors about blockchain and coin offerings as well as companies issuing press releases to hype their stock.
The latest one with considerable interest is Helios & Matheson HMNY, +32.12% the company behind another craze. The craze is MoviePass, which in some markets allows holders to see movies in theaters for far less money. The company buys tickets at full price and sells them at a loss to MoviePass holders. The company hopes to make money by selling the data it gathers.
The news is that now the company has 1.5 million subscribers. But, more importantly, the company said it may consider an initial coin offering (ICO).
AMD and Nvidia
I receive many emails from investors wanting to buy AMD AMD, +0.85% and Nvidia NVDA, +0.44% because their processors are used in cryptocurrency mining. There is no merit to buying these stocks at this time on a cryptocurrency boost as the benefits have already been discounted in the stock prices.
Overstock.com OSTK, -1.79% has been a favorite stock for bitcoin enthusiasts. Traders are gunning for a $100 target. According to the ZYX Change Method Quantitative Screen, the fair value of the stock is about $30. Again, it is a good trading stock but not an investment.
Please see “Ride the bitcoin wave with these 11 cryptocurrency-related stocks.” Be alert to the rumors that Amazon AMZN, -0.15% and Apple AAPL, -0.21% are going to start accepting bitcoin. Could Facebook FB, -0.17% and Google GOOG, -0.40% GOOGL, -0.34% float their own coins?
At The Arora Report we have profitably completed trades on AMD, Square SQ, -0.24% and Overstock. We are on the hunt for long-term investment opportunities in addition to short-term trades. We expect many such opportunities in the near future. The time to make a fortune from blockchain is ahead.
Blockchain, the technology that underlies bitcoin, is likely to revolutionize many industries. It may turn out to be as important as the internet.
Investors must be cautious that there is high risk, especially in short-term trades. Often such stocks trade completely divorced from their fundamentals. Short squeezes are common. Many stocks are nano-caps and have few shares outstanding; that makes them a target of manipulation. In short, be extra careful.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. All recommended positions are reviewed daily at The Arora Report.
Nigam Arora is an investor, engineer and nuclear physicist by background, has founded two Inc. 500 fastest-growing companies, is the developer of the adaptive ZYX Global Multi Asset Allocation Model and the ZYX Change Method to profit from change in trading and investing. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at [email protected].