Pumping and Dumping

PumpAndDump

Other of the concepts that I have learnt in theory, on movies (The Wolf of Wall Street) and then in the practice is Pump and Dump.

In that monthly chart, you can see how in 18 months, 1.5 years, the stock value of the company rallies up to 300% of its previous value.

Then, in 5 months, the company loses 60% of it stock value returning to the previous value seen two years earlier.

The trigger probably was a quarterly result indicating that the net cash had decreased substantially due to a expansion in China.

That company does not have any financial debt, and is using its own cash to expand to China.

In following quarters the company was showing income growth while the expansion operations in China were being successful and was already operative in that country.

In the more recent quarter, the net cash and revenues seems to be growing.

What it has not grown indeed is the value of the stock.

Between peaks and valleys

BetweenPeaksAndValleys

Context

I had read about the quarterly financial report, as you can see at the bottom of the chart, a purple icon indicating the conference call and the report release. I was expecting the value of the stock to rise. I was so positive about it, that, as soon as the market was going down, I was increasing my positions.

In previous days, the stock was already preparing itself positively for good quarterly results and, the market going down was probably a prudential correction of the previous rise.

Indeed, the value went up during the following days, re-testing the same limit three times in the following 7 days, that was not enough signal for me to get out profitably of those positions. Because… I thought it could touch previous limits…

Resulting situation

At some point in time, watching videos about trading or in some of the books I am reading, it was described this situation, when you get stuck in between the support and resistance area

The problem being there is that, since I did not start in a support area, I should not expect the profits of a long journey. Nevertheless, I did expect a bigger rise and I did not get those re-test signals right

Now, those positions, profitable at some point, are now a source of risk, on the derive, consuming interest per night.

I have extended stops and with that my potential risk. The stock is being repurchased and the quarter was good, that is why I am toleratingĀ it.

Expectations

I expect the stock to rise enough as for paying the commissions and interest. I will be happy if I can eliminate the risk.

Note: That is an ADR stock, that is why there are so many gaps.