I am introducing a new periodic feature called the "Shark School of Trading." The focus of these columns will be managing a trade after making a stock selection.
Picking a stock is easy, but managing it as market conditions change and price action shifts is the hard part.
When should we give up on a bad stock?
When should we double down on a good one?
What is the best way to manage risk and profit short term?
Let's start with Beyond Air (XAIR) , which is a stock that I discussed on December 29 as a top small-cap pick for 2023. XAIR is thinly traded and very high risk, but my thesis is that there is good potential for positive news flow, while substantial insider buying creates a higher level of confidence.
Current Market Conditions
As I discussed in my opening column on Monday morning, the stage is set for increased volatility this week as earnings and Fed interest-rate news hits. This will likely lead to increased volatility in a thinly traded name such as XAIR.
I want to be ready to add to my position should the stock dip due to overall market conditions. When there is movement in a stock that has nothing to do with its individual merits, it can provide a good opportunity to add to a position.
Potential Catalysts
The company recently announced a joint venture with the Stanford School of Medicine for its Beyond Cancer affiliate. This association gives me some added confidence that contracts are likely to develop soon.
The company has announced that it will present earnings after the market close on February 9. There will likely be an update on contract news at that time.
Strategy
My view on XAIR stock has not changed. There is still a good likelihood of contract news that will move the shares. I am taking advantage of the minor volatility within the trading range and will look for an opportunity to ramp up my position further on protracted market weakness.
I expect to see some positive anticipation as we move closer to the February 9 earnings announcement. If there is a good move before the report, then I will likely reduce exposure and add back to the position as the news is digested. If I have to pay a higher price once the risk is reduced, that is not a problem.
The trading range that has been developing will offer good support for a move higher when news hits, but it is important not to build too large of a position while waiting.
I want to be in a position to take advantage of the weakness rather than fear it if market conditions turn poor.
I'll update this trade at a later time. I will be covering more trading strategies for other stocks in future columns.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider XAIR to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)
