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Wednesday, September 28, 2022

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Mini-Bubble

Might be fun to watch this play out.  Just as an example, SSN (up 75%) is now a 1.3 billion dollar company, with eight employees and 8.4 million in revenue, price/sales of 161. 

Excerpt from "Anatomy of a Mini-Bubble

By Trader Mike

‘We mentioned numerous times over the past 48 hours the Micro-cap Energy momentum theme that has sent some previously unknown energy names skyrocketing, and all you have to do is check the percentage gainers list today to see that — for this morning at least – it’s still in effect (the top percentage gainers today in order are all micro-cap energy: SSN +75%, FPP +41%, BDCO +38%, MXC +29%, PDO +21%, LEI +17%… see 11:14). Rather than recap the specific circumstances that drove these names, we’d like to discuss in general terms how these momentum “themes” develop. It seems that maybe once or twice a year these mini-bubbles suddenly pop up out of nowhere, and they typically last anywhere from a few days to a few weeks. Right now it’s micro-cap energy, but last year it was small-cap China stocks, and a number of years ago we saw brief, huge rallies in bird flu plays, stem cell stocks, Tsunami plays, homeland security stocks, etc… In terms of identifying these themes in their early stages, they all form out of different circumstances, but they do tend to have a few characteristics in common early on:

  1. a sudden macro catalyst,
  2. a co-specific news event that leads to a huge percentage gain in a previously unknown microcap stock, and
  3. a broadening out where other related stocks rally and hold onto their gains (as opposed to seeing the usual intraday sympathy play chop-down)…

So for example, the current craze in micro-cap energy stocks is ultimately being driven by the accelerating rally in the price of oil during the past week (point #1). Normally, this might not be enough to move the often low-quality micro-caps, but then you had an extremely bullish earnings report by PDO last Thursday (point #2), which not only led to an attention-getting 60% gain for the stock that day, but induced momentum traders to scramble to find other sympathy plays. The broadening out phase (point #3) occurred when we saw a succession of positive press releases by other, similar US-based energy co’s (MXC, CLR, SSN), while the backdrop of new highs in crude oil continued to make headlines each day…

So in short, while past momentum themes all had different origins, they all required a definable macro event, and were followed by a quick succession of co-specific news items’… "

 

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