I want to share another educational takeaway this week specific to $WPCS, a contract winner that ended up communicating bad news by the end of the day. The important takeaway here is that if you’ve decided to hold a long or short position overnight, you always need to pay attention to both the chart and news in extended hours trading. Don’t take your eye off the ball as extended hours brings a host of challenges that can either be highly rewarding or completely devastating. Disclaimer: I didn’t trade this chart today, so I give this lesson not based on experience specific to this example. Let’s start off with the trade chart first.
At the market open this morning, $WPCS announced a contract win, that’s why we see a sharp price increase right out of the gate. There was a dip buy opportunity at $1.80, but most traders took advantage of the dip at point “A” on the chart. This propelled the stock to a new day high, followed by price fades due to early profit takers. Prices climbed steadily all afternoon up through point “B” on the chart, a key turning point because at this point, we’re approx. 1 hour until market close and we see a selloff. This should have been the key moment to warn traders not to hold this stock overnight, especially given that we failed to see a higher low before the close. Pay attention to what happens at point “C” on the chart after the market close. An SEC filing was published by the company announcing a discount financing, which suddenly caused the stock price to plummet. Overnight longs got screwed, and early shorts won the day. Under normal circumstances, shorting the first day of a contract winner is a risky strategy, so I wouldn’t advise that approach under normal circumstances.
Wait a minute, this whole thing reeks of something fishy. Was the late afternoon selloff the result of insiders dumping shares? Surely they knew the discount financing would be published as soon as the market closed. Well, there’s one more piece of the puzzle that leads many to believe this is the case. At the same time the SEC filing was published, the company simultaneously coordinated the publish of a PR announcing $1.7MM in debts had been paid. Clearly trying to offset the inevitable panic with a second glimmer of good news.
I’m not going to call this a pump and dump, but what I will say is that it appears that traders were manipulated through tricky coordination of the news, as the timing is suspect.
The takeaways for traders would be to scale out of your positions and take profits along the way to reduce your risk, and pay attention to what’s going on afterhours. There’s not nearly as much liquidity, but the volatility can be greater and it’s important to always be prepared.