Traders often talk about not anticipating, but the more I consider the phrase "do not anticipate," I realize it's incorrect. We use this often in trading charts. Don't anticipate a breakout. In reality, the saying should be "stick to your rules." In essence, when you anticipate a breakout, you're breaking a rule. Your rule likely says buy when X crosses Y or the stock prices closes above resistance, something along those lines. When you jump in front of that trigger, you are breaking your own rules.
That being said, we will anticipate. That's how the market works. You believe a stock is going higher or undervalued, so you buy. You think something is overheated or a fundamental change is coming, so you short. No matter how we spin it those are anticipatory moves.
But there are different levels of anticipation, some more dangerous than others.
For instance, I've been an aggressive buyer of Immatics (IMTX) under $12 today. The stock had an aggressive, yet sloppy, seller into the noon hour. Lots of small volume sales hitting the bid repeatedly. That comes on the heels of a major rally in the last 10 minutes of trade on Thursday when approached 200,000 shares in 10 minutes and price went from $12.27 to $13.60. This morning, the stock fell from $13.60 to $11.20 on new news and less volume than the last 10 minutes of the prior day.
Why the selling? I don't know. We probably won't know until there is an SEC filing. Or, better said, if there is any kind of insider filing. It's possible yesterday saw a fat finger at the close and that trader needed to unwind the position or was forced to unwind the position. It's possible there were pre-merger sellers able to hit the market. If you're in at $10, even $11.30 looks good to some.
Volatility in recently merged special purpose acquisitions companies (SPACs) isn't unexpected. We anticipate it. Add in this is a biotech name and you might have some impatient investors. It seems anything cloud or electronic vehicle related doesn't get more than an hour to prove itself these days. But this move lower reminded me of when Forum Merger II was hit. I aggressively bought that overdone selloff and found a nice bounce. I anticipated something similar would happen here. Shares have bounced 10% off the bottom. No, I didn't catch the bottom, but I believe significant upside remains here.
With shares already down 30% from their top and 12% on the table and running in a similar pattern to what I've seen before, I'd call this a reasonable anticipatory buy.
On the flip side is SPAC Spartan Energy (SPAQ) . Perfect ticker for sure. This SPAC has run 60% in two days. It traded up as much as 75% before cooling a little. All of this on the RUMOR it was making a play for Fisker Automotive, an electric vehicle producer with an SUV anticipated to hit the market in 2022. While we've seen names run after issuing a Letter of Intent or skyrocket after a Merger Agreement, buying this aggressively in anticipation of a rumor coming true is aggressive. When a famed penny stock promoter then issues a $40 price target, again on just a rumor, things become reckless.
This doesn't mean SPAQ will go down. It the deal comes to fruition, we could see another pop, but everyone is trying to make things out as if they were Nikola (NKLA) . After Nikola came Hyllion via Tortoise Acquisition (SHLL) . That soared to the mid-$30s before finding sellers. Then came Graf Industrial (GRAF) buying Velodyne. It moved into the lower $20s.
What we're seeing is a pattern of lower highs in the SPACs with a relationship to self-driving and electric vehicles. If that's the case, then SPAQ could top in the high teens even after a deal is announced. With shares trading to that level already today on just a rumor, it makes for an unattractive anticipatory trade. In short, your risk of no deal may now be greater than your reward for a deal. That's a huge yellow flag for me.
I find the best thing we can do for ourselves as traders and investors is avoid as many yellow flags as possible.
Have a great weekend.