One of the most important jobs as a trader is taking inventory.
- Identify trends that are working and try to repeat successful patterns
For example, if a specific sector is heating up (or cooling down), I want to be aware of it… If “low float” stocks are in-play I want to know.
You see, by taking inventory, you’re able to anticipate catalysts and get a feel for which ones will move stocks.
Which leads to some “lucky” trades (or skillful ones as you’ll find out later)…
Like the one I had yesterday in INPX:
And here’s the thing, another trade like this one is out here now. But if you’re unsure what to look for, you’ll probably miss it.
However, I won’t let it happen to you. And that’s why I put this case study together for you.
For the most part, I get into trades for the catalyst runup. Basically, I find catalysts and pair it with a chart setup, and buy ahead of time for the move higher into the event.
But, what happens if you can’t find a catalyst ahead of time, but a company announces positive news?
You might think you missed the trade.
However, there’s actually a second trade in the stock if you understand the catalyst and stock structure.
Here’s what I mean by that.
INPX Case Study
Yesterday Inpixon (INPX) announced it would acquire Jibestream, a premier provider of indoor mapping and location technology. Now, this acquisition allows Inpixon to potentially increase its revenue stream and earnings.
Additionally, it would extend Inpixon’s product line and there should be positive synergies between the two companies.
Now, with that positive catalyst… I knew I needed to spot the pattern.
Here’s a look at the chart I was watching in INPX.
Now, initially, we saw the stock consolidating after it gapped up… and it was actually holding the gap up really well.
Typically, with these news plays, if the stock hasn’t filled the gap up, it means it could run higher. In other words, if the stock didn’t pull back to the previous day’s close after an event and trades in range for the first hour or so… it’s likely it could run higher.
With INPX, I was patient and actually waited for a break above that consolidation area as shown in the chart above.
Well, once I saw that… I alerted clients about the trade in INPX and bought shares.
There was actually another factor in play here, other than the positive catalyst and the bullish pattern.
The stock has had a history of conducting reverse stock splits. Currently, stocks that conduct reverse stock splits are in favor.
Well, when a company conducts multiple reverse stock splits… that actually reduces the number of shares available for us to trade. In other words, it reduces the number of floating shares, as well as the shares outstanding.
You see, companies with a low share price typically conduct reverse stock splits to inflate their share price to fulfill listing requirements.
With INPX trading under a buck… it wouldn’t be surprising that INPX announces a reverse stock split after the press release.
Now, why were the previous reverse stock splits so important?
INPX only has around 10.31M shares floating. That means there’s only 10.31M shares available for us to trade.
That said, INPX was considered a low float… and it wouldn’t take much for the stock to move higher. You see, there’s not a lot of supply out there… and when there’s a positive catalyst, well that stock could be prime for a massive move higher.
Now, after I bought shares of INPX on the consolidation break out… it actually formed a bull flag pattern and broke out again, just as I expected.
After it broke out of that bull flag… I knew this stock could easily pull back… so I ended up taking profits and alerted my clients about the trade.
As you can see, you can always trade a stock after it announces a catalyst event… all you have to do is understand how the news affects the company and pair it with the chart pattern.
Now, if you’re having trouble finding the right setups and spotting plays like this one in INPX… then watch my latest trading lesson, as I show you how to find clarity in the markets with my simple-to-use strategies that have helped me make over $6M in career trading profits.