From Blue Chips To Penny Stock, The Market's Physics Have Changed

By now it should be clear that the market we traders find ourselves in at the moment is not a normal one. It’s a unique environment to be since the broad market rarely influences every corner of the equity universe, as it’s done this week thanks to fears surrounding the ongoing coronavirus

I say this now, but the full scope of that realization only really hit me during Thursday’s session when, right on the opening bell, I fell into the red by more than $7,000 on just 3,000 shares of Co-Diagnostics, Inc. CODX and lost another $9,000 in Alpha Pro Tech, Ltd. APT, again on just 3,000 shares. What was really painful was that, after they both exited their downward halt and I had closed those positions, both stocks ripped back up, more than 150% in the case of CODX.

I’ve been on the wrong side of trades like this before, but never to this degree where stocks are moving by 10% in an instant. Luckily, I’ve lowered my full share size or else I’d be down double what I am now.

It was an ugly day, but it shows that the market is in an unpredictable environment where normal physics might not always apply. That can be a double-edged sword, and even finding reliable penny stocks to trade will probably require a bit more forethought than it might under typical circumstances.

Take my gap-and-go approach from Thursday, both APT and CODX were prime setups that were gapping up 40% to nearly 100% in premarket. But, since both of these stocks have exposure to the healthcare field and are therefore high-visibility, there were simply too many premarket traders who sold on the open and managed to tank the stock. I recognize that in hindsight, but at the moment I was trying to approach them like I would in any other market.

Of course, that might not be the sole reason for the drop at the open. Ultimately, the new market gravity means that stocks may increasingly act in unexpected ways. Had I waited after the open, I may have been able to take advantage of the momentum that sent APT and CODX higher after I exited my positions. That would have turned a -$16,000 red day into a potentially $4,000 or $5,000 green day.

I guess the takeaway from this experience is that broad market volatility and panic can offer unique risks and opportunities to traders. The problem is, traders may have to exercise greater patience and caution in order to best capitalize on the opportunities they usually profit from.