Catalyst Trading Works During Market Selloffs

by | May 31, 2019

Hello trader,

Stock futures are set to open significantly lower this morning after President Trump announced yesterday that he plans to impose a 5% tariff on all Mexican imports from June 10.

It’s been a challenging market to trade this week… and sometimes that means taking what you can get.

 

(I’m up nearly $8K in trading profits from my FDA catalyst plays this week… if you want in on the action then click here)  

 

Believe me…

It’s better to remain patient… wait for tried-and-true setups… and don’t get sucked into trying to become a news-driven trader.

And while my results this week, aren’t necessarily up to my standards… there are several learning lessons we can take from it.

 

(My Options Rocket account is up over $8K this week, that’s $16K between both accounts going into Friday, if you’d like to start receiving my options trade ideas then click here.)

 

That said, I’d like to share with you what’s been working, as well as, a recent case study in Jumia Technologies (JMIA).

 

One Strategy That Works During Market Selloffs

 

It seems like every day, there’s more fear creeping into the market… and it’s getting harder for traders to find plays. However, that’s not the case with myself and my clients.

You see, we’re able to find stocks that are relatively strong when compared to the market. In other words, these stocks don’t really care what the market is doing… nor do they care about this trade war or economic growth concerns.

The only thing moving these relatively strong stocks are price action and company-specific news.

 

Not All Stocks Move With the Market

 

For example, one stock that’s been relatively strong is Jumia Technologies (JMIA).

 

 

Once this stock found some support and the bottom was in (for now)… it started to trend higher.

However, look at this chart over the same period in SPY – the market-tracking exchange-traded fund (ETF).

 

Jumia Technologies (JMIA) Case Study

 

Now, clearly, JMIA doesn’t care what the market is doing, just by looking at the two charts.

So what’s causing JMIA to move?

Well, price action… and some company-specific news.

JMIA has been a major target of short sellers. In other words, there are people out there betting against this stock and calling it a fraud.

Could this be true? Sure.

However, it’ll take a lot of time to prove, and the company has already defended itself.

A few weeks ago, famed short seller Andrew Left of Citron claimed it was a fraud… sure, the stock went down initially… but the Jumia’s Nigeria Chief Executive stood by its sales figures.

The stock caught a bid a few days later.

Now, Citron actually doubled-down on its short thesis on JMIA the other day. But you know what the stock did?

It actually rebounded… and the stock shook off that news with ease.

Well, that was a short-term signal to me that this news and short thesis is played out for the time being.

Now, the stock has some support around $20… and if it breaks below that… shares could head lower. However, the way it was trading… I figured the stock could run to $28 since it rebounded shortly after the Citron short report was released.

 

 

You see, the market cares about someone’s opinion sometimes… however, as you can see, the second time around… the statement doesn’t hold a lot of weight, it just moves on the initial headline.

So what did I do?

I actually bought options… and alerted clients about my moves.

 

(Not an Options Rocket client? What are you waiting for? Join Now)

 

Now, there was another reason to be long… JMIA has an abnormally high short interest. In other words, that means there are a lot of traders short the stock.

According to Finviz, JMIA has a short float (or short interest of ~27%). That means around 27% of the shares available to trade are short the stock.

If you don’t know, there’s something called a short squeeze in the market. Basically, if there is a large number of short sellers… and the stock reports a positive catalyst, or just runs up based on demand… well, the short sellers are forced to cover.

What that means is the short sellers will have to buy back the shares they shorted… causing the stock to run even further.

Here’s a look at the chart in JMIA.

 

 

Just two days after I bought options in JMIA… I took profits at 50%, a nice win there!

I even alerted clients and let them know I was taking profits…

 

 

No matter what market conditions… you can find winners out there. You just have to know what you’re looking for. Now, there’s a lot of news surrounding the U.S and China trade war. I’ve actually found a stock that could benefit from it, and if you want to know what it is… click here to learn more.

1 Comment

  1. brian dalsin

    Kyle, which trading platform do you use?
    Do you have platform setup videos for tos?

    Each ragingbull uses his own platform, and not all have of us have every platform;
    there needs to be setup videos for each trading style on each of the major platforms.

    Reply

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