10/12/2022
I leave you alone for ten days and look what happens to the market!
I kid, I kid…
For the first time in four years, I stepped away from the trade desk and took the family to Holden Beach, NC for some much needed downtime.
But it wasn’t all puffs of cigars by the water, I may or may not have taken a handful of trades and screened for upcoming buys…
And thankfully, I went about 90% cash before hitting the road.
Still, there are always trades to be made, both long and short and today, we’re checking out a small cap that’s been decimated.
I’m looking at it for a possible “dip before the rip”…
Here’s Nutex Health, Inc. (NUTX):
Okay, no position so far, although I’m watching the daily chart for now.
Short sellers could be running out of steam and, with a stock this volatile, you get to test both your patience and ability to identify bottoms.
Now, I know the old saying, “you can’t time the market,” could be parroted right here, but I call BS.
There’s an entire industry dedicated to timing the market.
Let’s dive in…
Indeed, we’re looking at a small cap in the midst of a bloody market…
But remember, small caps typically outperform the big boys. The issue is stock selection and that most folks can’t handle the volatility when the market pukes, and I get that.
So size in small…
While the market is falling, short sellers can trap themselves due to greed the same way folks can get trapped at the top of a bullish trend. The difference is that the latter can take comfort in knowing that the market has an upward bias over time.
With NUTX, I find the price action a bit suspicious…
As you can see, this was close to an $11.00 stock in June, but if you were to zoom out further, it made a run to $52.00 in April.
Considering the current share price, that’s a ton of short selling.
Looking at the chart, the recent drop is in lockstep with everything else.
The yellow bar shows an area of supply where the most recent selloff began and the pink bar is a previously tested demand area where buyers have historically hopped back in.
The green bar is the untested demand level, but this can expand or contract given the evolution of the price action.
This is the price range to watch closely.
Why? Well, if the stock retraces from here, you’re now into the top 25%+ portion of the recent move down.
And on the lower chart, the short Volume hasn’t pushed down the share price as much as you would think… This doesn’t mean it can’t fall further.
Nonetheless, the newly updated Alpha Waves tool from Chris Hood shows some wavering (white arrows).
To be 99.9% sure that there’s further downside to come, each of the dots would be bright red. However, here we’ve got the 20-period up top and the 5-period at the bottom with a muted red…
Could shorts be ready to cover? It’s possible.
The composite Stochastic on the tool is also well into the oversold area…
While this sounds like a solid case to get bullish and start scaling in, if this breaks and closes below $0.4915, I’d hop out quickly as this jumps the 2x ATR band.
But keep in mind, when this reverses, there’s a high chance of it going parabolic..
Keep moving,
(Disclosure: I have no position in NUTX but intend to initiate a position in the next 30 days.)
This material is not an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed, and is to be used for informational purposes only. Any performance results discussed herein represent past performance, not a guarantee of future performance, and are not indicative of any specific investment. Due to the timing of information presented, investment performance may be adjusted after the publication of this report. There can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this communication will be profitable, equal any corresponding indicated historical performance levels or be suitable for your portfolio.
