When a stock (non-IPO) doubles in one day, the cause is usually some type of positive news driven higher by the frenzied buying of the stock amongst day traders. I have created a term for a stock that breaks out one day, only to come crashing down in the days to follow. I call this type of move a “Hollow” Breakout, because there is nobody supporting the stock price after that big one day move, as most of the people bidding the stock up are day traders, most of whom exit the stock by the closing bell. There is a way to capitalize on these “Hollow” breakouts by simply shorting the stock a few minutes before the 4 pm close, but the key is differentiating hollow breakouts from breakouts that are supported by substantial and legitimate news (stocks such as ICPT and PBYI are stocks that had breakouts supported by long-term investors). In this series of articles, I will profile companies that experienced hollow breakouts. (Stocks included in these articles: CREG, SCOK, MVIS, TGEN, GENE, PXLW, IBIO, ISNS, RADA, OHGI, CDTI, & AMDA)
Within the past year, SCOK has evperienced about 3 or 4 high volume days on which it jumped 50+%, but I will look at two of those breakouts.
Breakout on 09/09/14
SCOK broke out from 2.71 to a high of 9.37 (200+% move) on September 9, 2014. The news was that SCOK said it will use a new technology to convert coal into a cleaner-burning fuel called “syngas”. They didn’t announce a positive drug trial, positive earnings, or do anything concrete: all SCOK did was reveal their plan to start creating a synthetic fossil fuel. This small news item was blown out of proportion by investors and the media, and soon the stock crashed back down to the $2-3 level, where it still is today.
Breakout on 06/19/14
SCOK shot up on June 19th due to their announcement of a new factory to be constructed to create syngas (synthetic gasoline). This news does not help the company financially, and therefore was bid up to to the hype surrounding the field of new/clean energy. If one would have shorted SCOK after this breakout, they would have easily made 20-30%.