Making a Buck — or losing a grandPosted: August 22, 2012
In my recent posting, I described in some detail the events leading up to a violent uptake in the per share price of MTSL, the equity for MER Telemanagement Solutions, and I anticipated that the per share price for the equity would rapidly decline to $1.60, the per share price in effect at the time of the close of the market on Thursday, August 17th, or — in a classic case of reaction-overreaction — below $1.60, primarily based on my expectation that an underlying dependency on a contract with Simple Mobile could adversely impact upon the financial fundamentals for MER Telemanagement Solutions.
Ignoring my fundamentals-driven predictions for now, the question I would pose to gifted student in an investment or trading class is this: What would you predict the price to be at the end of this week if 1) you knew that the price of a given equity was $1.60 on Thursday, August 17th; 2) you knew that you could have no reasonable expectation about receiving information about changes in the fundamentals of the company underlying the equity before October, or so; and 3) you were presented with a price/volume graph for this equity that looked like the one below.
I am not — by any stretch of the imagination – a trader, but I am a great believer in intuitive truth, and, so, had I been a trader — or, perhaps more precisely, a day-trader, I would probably be highly likely to, tomorrow, in the morning, take a close look at MTSL, and, if I saw a significant run-up in the early part of the morning, go short on the MTSL equity at some point before noon, EST, and, then, close out the position shortly before 4 p.m., EST, and, then, for the rest of the week — rinse and repeat, varying only the entry and exit time of the trades, probably taking my short position earlier in the day and moving my exit time closer and closer to 4 p.m., EST, as I gained more confidence.
In view of the current per share price level, the size of my short position would be calibrated on whether or not the price in the early morning in the morning exceeded $3. If it did, my short position would be small, not because there is some fundamental value point in a price of $3 for the MTSL equity, but because I have learned that traders that dabble in speculative trades tend to assign near-magical significance to “special” numbers, and, so, would, I believe, find it significant that the price broke the $3 barrier. Conversely, there is, of course, a very real risk that a break-through in price above the $3 level will lead to a rapid depreciation, signaling the end-of-the-line for the speculative run, and causing our a short-position to be hugely valuable.
My view is that, whatever happens over the next days or weeks, the run-up in the per share price of the MTSL equity is speculative in nature and is over-shadowed by the risk of MER Telemanagement Solutions’ potential loss of a significant revenue-source. Therefore, the MTSL appreciation wave is ultimately subject to a rapid break-down, possibly to a per share price-point well below the pre-speculation point. In a sense, watching the trading around MTSL is like watching a train-crash in slow-motion. As my mother likes to say “The sad thing is that, ultimately, it, will end with tears.”
On a side-note, special numbers appear to be incredibly important in a speculative environment and may provide a way to predict the swings of a speculative trade wave. This is very interesting to me for many reasons, in particular because it appears that special numbers come in many variations, being both absolute and relative to the equity in question. This is something that I intend to write about in the future.
Day-trading is a high-risk discipline and will, I guarantee, have an adverse affect on your health and cause you to lose your hair, and, so, should be avoided at almost any cost. However, once in a while, I see a graph like the one above, and I wonder — just for a moment — if it would be worth it. I can dream, I guess.
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