Secondary Offerings Put A Pause On May's Momentum

After a strong first half to the month, our May momentum has started to peter out this week, which is part of the reason I’m unfortunately still short on my weekly $10,000 goal.

This isn’t too disappointing since I remain green on the week and—because of the strong follow-through early in the month—solidly above my monthly benchmark. Nevertheless, the abrupt change in the market we’ve seen this week has been frustrating.

During Thursday’s recap, I touched on why I think an excess of secondary offerings might be part of the reason for the faltering momentum. Four of the stocks I traded in the week, Can Fite Biopharma ADR CANF, Obalon Therapeutics Inc. OBLN, MYnd Analytics Inc. MYND and OncoSec Medical Inc. ONCS each announced a secondary offering.

Funny enough, I successfully traded three of these stocks prior to their offering, making a little more than $8,000 between the three of them. But, my trades in ONCS, which was moving on a 10-for-1 reverse split, unfortunately cut into that by $4,700.

The net effect of these offerings is more share supply, less demand and a growing reticence amongst traders to buy into cheaper stocks like CANF and OBLN for fear of getting caught in a news halt and losing their shirts.

It’s fortunate that I did trade these names when I did and was able to watch the sell-off from the offering after I was out of the position.

My Monday trades in CANF (the leading gapper on my premarket scanner that day) was really the only strong momentum play of the week. I entered my first position with about 7000 shares at the break of the premarket high for my first trade, took a small loss on a broken one-minute setup, then made one final trade on a five-minute break above the previous candle that did follow-through that eventually pushed it to a high-of-day 70 percent above its previous close.

Two hours later, the stock was halted and the company announced a $6 million direct offering. CANF finished the day lower by 36 percent.

Which explains why, on Tuesday, on a very similar setup in ONCS, there wasn’t as much enthusiasm to trade the move. I took a large position as the stock was exiting a circuit-breaker halt, but ended up buying near the top of the move just above $5 and getting stopped out. I took another trade as it squeezed back up with the same result.

ONCS remained in that range the whole day before falling on Wednesday’s open after, you guessed it, the company announced a secondary offering.

While I’m never happy to take a loss, particularly of that size, Tuesday’s red day sent a clear signal that the market winds were changing, and I needed to change with them. I posted a couple of small green days Wednesday and Thursday, and I plan on remaining cautious on Friday.

Adjusting your risk isn’t simply about the characteristics of the stock your trading, but the temperament of the traders with which you’re competing.

Warrior Trading is a content partner of Benzinga.