Chart reading… the crazy short selling way (plus other silly tricks)

Here are some shortcuts that I use to quickly figure out a stock.

  1. Mysterious price spikes on high volume and little/no news.  Sometimes, these coincide with stock promotion like an email blast, physical mailers arriving, etc. etc.  A stock that has many of these spikes is probably an egregious pump and dump.
  2. The stock IPOed during the Dot-Com era and has been on a slow decline since.  Usually these Dot-Bomb wreckages are a decent place to look for shorts.  A lot of questionable stuff went public during the Dot-Com boom.  Such stocks have a tendency to stay somewhat questionable.  Pedigree matters.
  3. The share price performance since inception isn’t very good.  Usually a sign of a bad or mediocre underlying business.

  • The stock trades on OTC/Pink Sheets or other junior exchange like the TSX Venture.  Most of these stocks are garbage.  NASDAQ occasionally has pump and dumps, AMEX (NYSE Mkt) less so, and NYSE has the least.
  • Small-cap, Canadian, and mining-related.  There is a 99% chance that the company pays for stock promotion.  I don’t even bother to figure it out.
  • Scamcouver.  If the company is from Vancouver Canada and is mining-related, it is probably a smallcap too.  This overlaps with the small-cap Canadian mining rule.  A lot of pump and dumps originate from Scamcouver because the Vancouver Stock Exchange used to be the #1 exchange for mining stock promotes.  Oh yes, I pay attention to pedigree.
  • More pedigree details.  If there was no IPO and the stock came to market from a reverse merger, then the stock is likely very low quality.  Moving up in the world, SPACs are less bad.  Private equity is less bad than SPACs.  VCs who fund nerds in a garage tend to be pretty clean.  But VCs are greedy, so they tend to IPO stocks when investors are willing to overpay for them.
  • The name of the stock.  Promotional stocks tend to have names that push retail investors’ buttons.  Concept stocks, names that contain the word China, cleantech, marijuana, silly phrases like “save the world”, etc. etc.  A mining stock that contains the name of a specific mineral is more likely to be a pump and dump because the part-time CEO wanted to create a pure play story stock.
  • The borrow is expensive.  The stock will likely go down in the future.  (Don’t confuse this with the stock being a good short.)
  • The market cap is above $1B.  The stock probably isn’t a pump and dump.  Pump and dumps rarely get big.
  • OTC listed, virtually no volume, and the market cap is hundreds of millions of dollars (or more).  Almost certainly a pump and dump.  I would never short these until there is volume.  CYNK is the poster child for this.
  • The shares have been on a steady decline since inception and the company continually issues shares.  Management is good at siphoning money from the company and/or wasting shareholder money.
  • The stock has been around for decades.  Probably not a pump and dump.
  • It pays dividends.  Probably some yield vehicle and less likely to be a pump and dump.
  • Sector.  Certain sectors are popular for pump and dumps… junior mining, pharma, oil and gas, China, cleantech, marijuana, etc. etc.  If it works, the scammers will keep doing it.

Just based on name and stock exchange alone, you can make excellent guesses about what is and isn’t a pump and dump.

My obsession with whether or not something is a pump and dump is largely because I have a list of 1400+ stocks that appeared on my short screens.  If something isn’t an egregious pump and dump attached to a bad business, I don’t want to waste too much time researching it.  As well, I am always evaluating new short screens and seeing which ones are an effective use of my time.

Tools

I’ve found Chrome custom search engines + Google Finance to be the quickest way of pulling up a stock chart.  The data isn’t very good but it loads really fast so I put up with it.

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