I thought I haven’t been able to tweet much these days and owe my loyal followers something to compensate for that :). Some of you might already know this but I doubt it’s very common. So here we go.

This post is here to prevent you from paying for something you can already get for free. Faster and better than any paid service. 

If you’re a trader, you ideally already know how to read SEC filings and decrypt important information that companies (at least the companies I deal with most of the time) sometimes don’t want the average investor to see. You also should know that all SEC filings are available for free at http://www.sec.gov/edgar/searchedgar/companysearch.html

This is basic stuff. 

The thing is, going through these filings, monitoring them consistently is a tough job. But sometimes being aware of these SEC filings before anyone else can give you a tremendous edge. It can be a financing deal, insider trading or contract news which won’t be on the wires or will take some time before it’s there. 

For this reason there are many websites that will monitor these filings for you, report insider trading information etc. At a significant cost, of course.

However, you can get all of this for free and most of the time faster than any of those websites. Also, you can create a portfolio and customize which companies’ filings you want to be aware of.

All you need is an RSS reader. There are many varieties for free out there. I use Google Reader. ( http://reader.google.com )

If you don’t know what an RSS feed is, please google it. Basically it lets you know when a webpage is updated and gives you the updated content.

I’m assuming you have a Google account. All you need now is, adding RSS feeds of the stocks you want to monitor. This may take some time but it’s a one-time thing. All you do is, click “Add Subscription” button on Google Reader. And as the address, you will enter something like this:

http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001083522&type=&dateb=&owner=include&start=0&count=40&output=atom

This is for Jones Soda (JSDA). Each company has a serial number called “CIK” and you can find CIK for every listed company here:

http://www.sec.gov/edgar/searchedgar/cik.htm

When you get the CIK for the company you want to monitor, change the CIK part (in bold above) with the CIK for the company you’re adding.

Rinse & Repeat until you have all the companies you want to monitor.

Mark all as read in your RSS reader so that you have a clean start.

After this, whenever there’s a filing, you’ll get a lightning fast notification in your RSS reader. It can be very handy. And best of all, it’s free. This is what it looks like (you can rename the feeds to match the symbols if you can’t memorize the company names):

Hope this helps :)

How does this chart look to you?

What a strong uptrend, increasing volume, breakout above 2.00 resistance, MA cross… Right?

Right. Only one problem. Just a week later, this stock (doesn’t matter what it is) was trading at half of what you see in this chart. And it was no surprise.

Now, I myself use charts all the time. I believe in technical analysis. But what I hate seeing is, people who think they can chart anything (3x ETFs???), trade ANY stock over ANY time period using purely technical analysis.

I’ve been bashing Harry Boxer on my Twitter page recently. He is supposed to be a reputable “stock picker” in general. He also has a paid service. The problem is, this guy previously recommended stocks like ABIO and ENCO for swing trades just based on their technicals, ignoring how terrible the companies actually are and not surprisingly, stocks collapsed big time soon after the recommendation.

Recently he picked another one, JSDA. Now I know as much as any other guy that this stock has a bullish chart and you should be all over it IF there was no significant risk of dropping 30% as soon as tomorrow. As you can see in firstadopter’s excellent posts, the company has no cash, huge cash burn and has been losing money consistently for years and years. The reason for recent run up is complete fluff and it has to end either with a highly dilutive stock offering or bankruptcy.

Anyone who’s been in the market for a little while knows that hype always dies and when it does, it creates many unsuspecting bagholders. I just can’t accept the fact that a guy who runs a paid service for years can intentionally or unintentionally (???) neglect this fact, look at some magical indicators and pick a stock. As if all stocks are the same, as if all stocks follow the same rules.

Anyway, technical trading is fine in most cases, but there are situations where it hides the ugly truth and that truth can be very costly. I think it’s very important to have a hybrid approach of fundamental and technical trading. In general, if you’re a technical trader I believe you should:

- Know the company you’re trading and the risks involved. You may think your timeframe is too short where fundamentals won’t matter. But, what if it’s your unlucky day and the stock you’re trading is halted during those 15 minutes you were planning to be in?

- Be aware that technicals, contrary to some might say, may paint a much different picture than what is about to come. This is especially true with smallcaps where so much shadiness abounds.

- Know how to read SEC filings, balance sheets etc. Do the math!

- Don’t blindly chase the hype. Hype is a game of musical chairs. Hype is gambling.

- Be very reluctant holding overnight if you see some red flags. Bad things happen at night.

- Don’t over-complicate things as some technical fanatics do. The more complex your indicators are, the more confused you will get. Stick with a few simple ones.

- Remember that no matter how your chart looks, you can’t ignore world events, overall market condition and the sector you’re trading. They will affect your stock sooner or later. 

- Once more, do the math. It’s not really hard.

PS: The same idea is also true for “Pure Fundamental” traders by the way, but that’s the subject of another post.

My thoughts about how a stock tweeter can be a useful resource to others:

1) If you tweet an entry, tweet an exit. It’s acceptable if you tweeted a stop and mention it’s a hard stop. We’ll automatically assume you’re out.

2) If you tweet an exit, make sure you tweeted the entry before you do the victory dance. Just stay quiet otherwise.

3) If your entries are consistently far away from current prices, at best you will stop being useful and most likely we will stop believing you. Try to post them while they’re still relevant, and especially before you know the trade is already going your way. We know that it’s not always possible to tweet timely, just try to do your best.

4) If most of what you’re doing is touting how awesome your last play was, you are not generating ideas or useful comments. So you’re useless. We’ll unfollow you. It’s fine if you do it every once in a while. We know that traders tend to have big egos.

5) Try not to marry a stock and even if you do, stop tweeting 27 times a day about it. We get it, you have the next MSFT and you want everyone to know it. We just think there is a tiny little chance that you’re wrong and want to be following a bunch of other stocks as well, you know, just in case.

6) This is serious business, make sure you tweet correct information. “Oops, earnings were $0.50 per share not $3.50, my bad.” First time you do it, it’s a mistake. The second time, you’re a manipulator.

7) Constantly asking “what do you think about XYZ” to “elite” traders is probably annoying them. Try to limit it or ask more elaborate questions.

8) If you get an idea from someone and make money, give credit to them. Don’t be a jerk, chances are someone is following both of you and he’ll know that you stole someone else’s idea.

9) If you lose money, it’s cool. We all do. Don’t just pretend it didn’t happen. We will remember that you had 50000 shares of CTIC at some point. Where are they?

10) Wherever possible, tell us more than just what you buy and what you sell. Tell us why, give us a timeframe. That’s usually more helpful than the trade itself, especially to new traders.

11) If you’re new, mention that in your profile page. It’s easy to look smart on twitter until you don’t. Don’t drag down other new traders with you.

12) Stop blaming the market, MMs, robots, Goldman Sachs, Chuck Norris or any other entity every time things don’t make sense. Markets don’t make sense. Markets are rigged. Get used to it. Whining is noise on our twitter feed, we’re there for awesome stock commentary.

13) Twitter wars aren’t uncommon and you may find yourself in one. Try to keep your calm, controlling emotions is one of the virtues of a great trader. Show us.

14) If you have a paid service, we understand you’re on twitter to get more subscribers. But give us something good for free once in a while. When I divide amount of self promotion by useful commentary it needs to be below my Unfollow Threshold. Otherwise you lose a potential subscriber for good.

15) Don’t point fingers and brag when someone was wrong and you’re right. This is the stock market, roles may easily reverse the next time.

This will be an introduction to shorting stocks that run big even though they don’t really “deserve” it. If you’ve been following me you know that it is my main and most successful strategy.

I will go over what to (and what not to) short, when to short and some common pitfalls. This is a technique that’s a little out of ordinary, so I hope that it will be a nice addition to your trading arsenal.

Just go to http://bit.ly/cV2Qqg in order to register for free.

Thanks to @stockguy22, @KoSoVaR and others in stockguy chatroom for making this possible. See you on Saturday.

-Cody

Insider trading can be a significant tool at your disposal in terms of indicating a stock’s future direction. However, insider trading data is full of noise and most of it actually doesn’t mean anything, contrary to what many believe. To really have an edge over others, you need to act like a detective looking for clues among all the noise. It’s a fun game.

In case you don’t know, SEC form 4 is the one that is most important in terms of insider trading. I like to spend a little time on weekends to review last week’s insider activity by looking at all form 4’s.

Here are a few random tips to find your way around them:

- First and foremost, insider activity is not a technical indicator: You shouldn’t buy or sell a stock purely based on insider activity. It should be part of your “due diligence”. Insiders can be wrong just like anyone else.

- Buys are much more important than sells: An insider can sell for any reason. For many companies, the stocks held by an insider may represent most of his net worth. So it just makes sense to take some of it out and diversify. Or buy a car. Or a house. You get the point. However, when an insider makes a purchase in open market, it means only one thing; he thinks the stock will go up.

- Only look at open market transactions: For example, insiders may be able to buy a stock 15% cheaper due to their stock purchase program. This means very little in terms of future direction. However, if the stock is purchased in open market, that is, within the price range of purchase date, it means much more. You need to look at “Transaction code” column in form 4 and make sure it is “P” for open market purchase or “S” for open market sale. Ignore others.

- Option-related trades are mostly insignificant: Most insiders have options in company’s stock, as in they are able to buy at a certain strike price and sell at open market. You will see that most insider transactions are like that, it involves a purchase at a low price then an immediate sell at a much higher price. There is not much to see here, the insider has a big risk-free profit and he’s taking it. However, there are a few red flags:

• Is the insider exercising options way early before they expire? In the SEC filing, you will see the expiration date of exercised options. If they were exercised, say, 6 years before the expiration, then this transaction deserves extra attention.
• Is the option being exercised very close to strike price? If the option is granted at $20 and the insider is in a rush to flip it the moment stock hits $22, that is clearly a bad sign and indicates low expectations.
• If an insider buys the option-related shares close to expiration but doesn’t immediately sell them, that is a huge plus. Happens very rarely but the fact that the insider chose to not take the free money and let it ride means a lot.

- Check how many shares insider still holds after a sale: I said sales aren’t as important as buys but this can be a big red flag. On every form 4, you should see the insider’s remaining shares. If you see that he is getting rid of most of his holdings, or worse, hitting 0 shares, there may be something going on.

- Look at the relative worth of new shares purchased for a particular insider: The CEO may be holding a million shares and he may get 50k more, that doesn’t mean much compared to a director holding 50k shares and getting 50k more. It indicates higher conviction.

- Transactions by high-ranked insiders are more important: A CFO will have a much better understanding of the business than a 10% holder.

- SEC filings are prone to errors: There are quite a few cases where you see a P symbol instead of S or see an extra 0 somewhere. This is purely human error as filing SEC forms is a cumbersome task (If I was doing something illegal, I wouldn’t report it at all). It will most likely get amended soon in another form. Just be aware of this and if you see something funny looking, there is a chance it’s just a mistake.

- Disregard initial purchases: If this is the first share purchase of the insider (going from 0 to X shares, unless he sold earlier), it doesn’t mean much. When you get an insider status at a company, it only makes sense to purchase some shares.

- If a small cap stock recently made a huge run, look for insider sales: Happened recently in DRAM, RWC, CNLG etc. There were lots of dreamers out there who were thinking these are 10x baggers while insiders sold into the spike right away. Who do you think was right? This is probably my favorite usage of insider data as I can combine it very well with my main trading method of shorting fluffy momentum. What this type of sale tells me is simple: There is no other big catalyst in the immediate future, meaning it’s safe to short. Some stocks can’t stay up without catalysts.

- Remember that insiders can’t swing trade: If an insider buys shares, he can’t sell for 6 months for profit. When he sells, he has to give the profits back to the company. So, don’t expect miracles right away when you see insider buys. If the buys are convincing, put the stock on your watch-list and look for potential catalysts in the mid-term.

- An insider transaction is more helpful in avoiding bad trades than making good trades: If I see an insider buy at a company that I think is worthless, I will stop thinking of going short. Straightforward. Make insider trade search part of your DD process.

- Price level of where transactions happen (or don’t) is important: If a stock is down 30% from its highs and there are still insider sales, it’s a bad thing. If you think a stock has bottomed out mid-term but there are still no insider buys, it’s also a negative. If there is steady buying during an uptrend, well, I don’t need to tell you what that means.

- Direct vs Indirect: In SEC form 4, you can see that there is a column to indicate direct or indirect transaction. Don’t just disregard indirect ones as they usually mean a relative of the main guy is trading on insider info, or the insider is buying for his daughter etc.

- Look for batches of insider activity: If CEO, CFO, 4 directors and their mother-in-laws are all buying shares, it means much more than just one officer buying.

Hope this helps. Hit me up on twitter (@codytrades) if you have any questions, comments.

(insidercow.com is my favorite source for tracking insider transactions. Let me know if you want to sign up and I can get you one month free -that gives me a free month as well due to referral. I am otherwise a paid subscriber of theirs and have no additional affiliation)

In the past 5 months or so, I’ve been sharing almost all my moves realtime with Twitter stock community. It’s been great; the thing you feel when someone follows your move, makes money and thanks you is amazing.

I’m writing this just to let my followers know I won’t be doing that anymore. Well, I’m not really going anywhere, I’ll still be around and will share some of my trades, ideas and comments. This blog will also be updated as often as it has been. But I won’t be nearly as active in general. If you’ve been following me, you know that I’ve been religiously tweeting open&close of every position, not leaving any “orphans” behind and justifying my every move. I hope it was useful to some of you. But I won’t be able to keep doing that.

I should also point out that this decision is completely for personal reasons, and has nothing to do with anyone but me. As you may be aware, keeping a Twitter page up to date with realtime plays is time consuming and I now have to have different priorities in my life. That’s all.

Thanks!

-Cody

One pitfall most people don’t realize when trading biotechs is an expectation that the stock will pop going into events like conferences etc. While it happens from time to time when company presents unexpected data, most of the time these are non-events. In order to spike a stock, there needs to be unexpected news. However, these conferences are expected by everyone and most of the time merely a “sell the news” opportunity.

I was looking at the Bio CEO conference (http://www.ceo.bio.org) attendees to see if there are any opportunities. The conference starts tomorrow. Just for reference, I went back one year and selected a bunch of last year’s attendees. Then looked at their performance in the week of the conference. Results weren’t surprising, most of the stocks went down or did nothing with only a few showing significant gains. I’ll share the graphs below. (Click if they appear small)

Note that the market was mostly flat that week. Of course this is not a big enough sample size and doesn’t indicate that we’ll get similar behavior this year. But I see it as a good starting point, better than nothing.

I personally wouldn’t get too excited about this conference unless you know your stock well and expect something out of the ordinary for this conference. I will still be watching attendees I list below for breakouts, based on either their recent price action or historical performance around these events:

OPXA ARNA AVNR ANDS MITI GERN ISTA IMGN ATHX

I’ll put alerts on key levels and if I see volume, I’ll jump in for probably some scalps.
Good luck everyone.

Disclosure: I don’t have any positions in any stock mentioned above at the time of writing.

Update #2: Since the time I wrote this post, I have recouped most of my losses mentioned below by shorting CNLG again from 4.38 to 2.85.

====

First let me say this: Stock market is a scam. I’ll repeat, the stock market is a scam. Accept it and find a way to make money out of it. There is no room for whining. I’m not going to whine.

I lost about 70% of my position (Update: That’s not exactly right, please see the note at the bottom) today on my CNLG overnight short. Yet I feel free as a bird, not concerned at all. Some of you might remember I wrote pages about my mistakes on EONC trade. Here, my loss % is bigger but there’s nothing to write about. Because I did everything right according to my system.

The other reason I’m not concerned is, I know for a fact that I’ll make most of this money back on the exact same stock. In fact I already started.

=======

So, since I believe I was right, I just want to explain the scam these guys have been doing for years. It’s a family business, the Benou family has a company with a tiny float. The company itself has little to no value. It’s a tech company with 8 production employees. They have gone through 4 reverse splits. If you look at a monthly chart you’ll see prices like $2000. That wasn’t the real price. That’s reverse split adjusted. Yes, they are -that- bad-.

- Every now and then, the directors (mostly the Benou family) award themselves shares. Here is the most recent one for Mr. Marc Benou(note how many shares are rewarded, we’ll get back to that)  : http://msnmoney.brand.edgar-online.com/DisplayFilingInfo.aspx?TabIndex=2&FilingID=6977605&type=convpdf&companyid=8837&ppu=/Default.aspx%3fticker%3dcnlg

- Then they release some fluffy PR about their (probably non-existent/non-feasible) product, “GlowWorm”. Here is the most recent one: http://finance.yahoo.com/news/Conolog-Announces-Start-of-bw-604947518.html?x=0&.v=1

- The stock spikes thanks to tiny supply, then the insiders start selling the shares they were rewarded.

When the stock spiked last week, I knew this was the plan. I called it perfectly and the stock went down to 1.70s from its highs around 2.70s, in the same day.

Then last Friday there was another spike. I saw some buyout rumors which are of course ridiculous. So I thought this was probably the last phase of the dump, shorted at a great price and was up by the end of the day. Then I thought we were done and Monday would be the death spiral. So I held overnight.

The Benous had a better plan. Since they know their low float stock is going to be a toy in daytraders’ hands, they released another fluffy PR about a 1.9M order, which is payable over a year. Meanwhile, they paid a pumper (WallStGrand) $120K out of company’s remaining (drumroll please) $466K. http://bit.ly/bi7kR2

This caused a huge run, which I was totally not ready for. I took a loss but reshorted near the top. Why? This is the fun part:

http://bit.ly/d0IHTG

Remember how many shares the Benous were awarded? That’s right, 210000 each. Scroll to the 9th page here, how many shares are they selling now? Yes, 210000. So, everyone and their mother in the company is selling all awarded shares in 2009 incentive plan.

I should remind you that this is not a secondary. The company is not raising cash here. This is funny because I fully expect them to do that, like, tomorrow or something. This is from the footnotes of today’s filing:

“However, we may need to seek additional financing sooner than we anticipate as a result of factors including but not limited to the following:

o changes in operating plans

o lower than anticipated sales

o increased operating costs; and

o potential acquisitions

However, additional financing may not be available on commercially reasonable terms, if at all.”

So yes, given the track record of the company, I am not concerned at all. Most likely a dilution will come soon and I assure you that the stock will be trading below 2 in a week. Can it go higher before that? Of course. Can I lose more on this stock? Of course.

But that’s not the point. This is how I play these things, it is riskier than most people would stomach and I accept that sometimes things don’t go my way. Still, I make sure I have great reward potential with this great risk, that’s the reason I’m still up a decent amount for the year even though I lost 70% on one trade.

======

So what’s next? We know for sure that the company won’t release any more fluffy PRs. Insiders wouldn’t have sold their shares otherwise. So it’s just a matter of how long daytraders can keep this thing going. Given the history of the stock, I’ll go ahead and say odds are on my side.

As I said in the beginning, the stock market is a scam. But don’t be surprised when you discover that by losing money. This is the way it is, from Goldman Sachs to the crappiest pinksheet stock. I am not pissed, I am actually grateful to them because when you know the games that are played, you have got the edge over others.

Disclosure: Short CNLG.

Note: 70% is not my actual loss, that’s an eyeballed number looking at Friday’s close (where I was up). So it’s the % loss in my first entry from my unrealized gain level. All my entries/exits can be found on my twitter feed.

If you are thinking of following me on Twitter, or just started following, please go to http://bit.ly/2VfD0C to know what to expect from my trading style mostly.

You can also ask me anything you want at http://formspring.me/codytrades (No need to signup, but if you signup you’ll know when I answer your question).

I recently had to stop tweeting my realtime plays. Please read http://bit.ly/d1fJ0C

I did a webinar on shorting overextended moves. You can check the recording here: http://bit.ly/9JaHzd 

My email is codytrades at gmail dot com if you need to tell me something.

While the fundamental rules of the trade are the same since Jesse Livermore, trading dynamics are going through a huge transition with wide use of internet, social networks and computerized trading. That means, as a good trader, you need to adapt. Here is a few things we can do to make use of technology and improve our trading.

Beware of stock promotion: There always was stock promotion. Used to be in the form of phone calls, regular mail etc. But now that communication is much more easier, it’s more common and effective. I’m not saying you shouldn’t buy any promoted stocks, that’s your call. But always keep an eye out for disclaimers, be fully aware that if something is being “pumped”, there is a really good chance it will be dumped at some point. Don’t believe anyone, always look for conflicts of interest in small letters. (Compensation, free shares etc)

Make use of stock promotion: Subscribe to every single free stock promotion newsletter out there. Why? Not because you want to buy what they say, but because when a stock is moving, it will help you know the reason behind it. If it’s mentioned in one of the newsletters you receive, you take it with a grain of salt. Also, 99% of these pumps end in dumps. Buying pumps is risky, but shorting dumps is lucrative and safer. Having a list of stocks that may plunge next week is certainly helpful. Finally, be aware that not all promotion is for pump&dump purposes. Some small but real companies geniunely need exposure and promotion is the way for it. Keep a clear mind and don’t completely ignore an opportunity just because it’s a promoted stock.

Twitter’s power: This is not specific to twitter, but as means of communication improve, spikes have become more common and powerful in stocks. When dealing with smallcaps, this inevitably creates artificially inflated situations where all traders rush in to buy the stock mentioned by someone. Currently it is coming to a scary point where chasing an illiquid stock frequently pays off. I don’t have the final verdict on this yet as it’s all happening too fast, but just be aware that the trading ground is changing shape and we all need to adapt. Maybe we should just accept that these are the new rules and we’ll just go along with them. I can’t yet convince myself to buy a stock just because someone and his followers are buying. But if it’s all turning into a game of musical chairs, what else to do? I adapt.

(I’m not blaming anyone or any stock community here. This is mostly happening because some of these guys are just too good. It’s inevitable.)

Careful who you follow: This may sound obvious, but I should still mention it. Everyone and their mother can now tweet. And following good traders may just be the best way to improve yourself. But just look at their trading record. Do the prices they mention almost match the realtime prices? Do they ever close a position they never tweeted an open for? Do they tweet opening a position but never tweet a close? There are way too many wannabes out there, when reality is 95% of them are losing. When in doubt, stop following.

High Frequency/Computerized Trading: You may have noticed that especially in large caps, buying breakouts or shorting breakdowns don’t just work as they did before or as it’s taught in trading books. Reason: computerized trading. When there’s a breakout, there’s a selling program to trap longs. And vice versa in the case of a breakdown. Not as much of an issue in smallcaps that big boys aren’t interested in. Won’t go into details, an amazing read about the subject can be found here: http://www.sfomag.com/article.aspx?ID=1448&issueID=c

Don’t spend too much time in message boards: Every single stock out there, even $HEB, has someone believing it’s going to explode (or plummet) next week. These guys are wrong 99% of the time. Especially if you’re a speculator type trader, reading these can make your trigger finger hesitant. There’s plethora of good information on message boards, but you should learn how to distinguish between real information and pure fluff. When you feel like what you read is tainting your vision, get out of that message board. That guy is wrong. You are right.

Research research research: It’s unbelievable how much information you can find online now. Especially when dealing with speculative companies, try to find out everything you can about them. Go to google map street view and look at their address. Does it look like a shack in the middle of nowhere? Probably not a good company to invest in. Does it have 2 employees and say they’ll be the next Microsoft? Yeah, right. Google the names of the directors. Check if the company paid anyone to pump their stock. Look at the company’s website, download their presentations, read SEC filings, check out their products for yourself. Do your homework, have the edge against other traders.

Use a realtime news service: Again, you want to immediately know why a stock is moving. Get Trade The News or Briefing so that you can judge if any move is justified or overdone. This is a skill you will gain in time. But be aware that even though these services are fast, people on the trading floor probably heard it ten minutes before you. Buying the news is one of the riskiest trades you can make.

Isolate yourself from the noise: In the end though, the problem with plethora of information is that you risk getting lost in the middle of it. Try to limit your scope, reduce number of people you follow on Twitter. Focus on few stocks at a time. You can’t catch them all, just accept it. Don’t jump from stock to stock when everything seems to be moving. As @copperstl says, there’s always another trade, another day.

Good luck.