Wednesday August 17, 2022
Context
VERU is a Biotech company that has been trading since 1990. For the bulk of its existence,
it has traded below $10 and even traded as a penny stock for a few years after the .com bust. It
was trading just below $5 in April 2022 before it began making a move to the upside. By August 2022,
it was trading about 2.5x higher just below $12.
During that entire run from April 2022 to August 2022, institutions traded it relatively lightly. There
wasn't much commitment in the form of disproportionately large block trades. That changed on August 2
when institutions traded 1M shares at $12.34. Still, price remained relatively flat until August 10th.
Over the next week, price doubled again, peaking just below $24. It was then
that this tweet
was sent alerting users and followers that the largest trade in several years had just printed.
Having witnessed this phenomenon countless times, I was confident that institutions were closing longs
that had been accumulated over the prior weeks/months after price moved from $5 to $12 in a few months
and then again from $12 to $24 in the span of a week. If I've said it once, I've said it 1000 times.
Institutions sell high. Pros take profits.
After that tweet was sent, some questioned that logic and cited "reasons" why that trade shouldn't be
assumed to be a sell. There were rumors of FDA approval. There were
technical patterns suggesting a breakout had occured and that the most appropriate action was to buy
and/or hold in anticipation of further upside. Retail was being fed plenty of optimism. But there was
one overwhelming reason to close longs and/or enter shorts. Because speculation about what MIGHT happen
or what COULD happen does not matter in the face of data that tells us what DID happen.
We had the trade data, and the trade data told us that the largest trade, perhaps in its entire
history had occured right after a steep rally.
What makes more sense:
1) Institutions with deep pockets wait for price to get to all time highs, THEN commit huge sums of money
and buy at the top?
or
2) Institutions use their deep pockets to pump price to all time highs, and then propogate rumors about all of the
good things to come, lure in retail, sell into strength, and move on?
The latter, obviously. Institutions *need* retail to sell into. They can't profit until we step up and hold
their bags. That's how the game is played. That's how it's always been played. Institutions are early. Retail
is late.
Institutions don't buy high after price goes up 6x in a few months or 2x in a week. Only retail does that, and only retail
would think buying makes sense *after* price has already rallied. That's one reason retail usually loses. Tops are not the time to jump in. Tops are
the time to get the heck out. Buy low, sell high, right? Right.
The next day, selling began immediately. Furious selling, in fact. These tweets were sent out in
real time as price began its rapid descent:
So, what did we learn here? What did we observe?
1 - Keep it simple. If institutions go big at the end of a big rally, odds are they're selling.
If institutions go big after a substantial selloff, odds are they're buying. Not always, of course.
There are no guarantees in trading. But probabilities do favor such outcomes.
2 - Institutions defend their positions. If that trade was a buy, price would not have been allowed
to fall so quickly and easily. Price would have been held up and pushed higher. If
it wasn't clear that they were selling at the end of the day when that print arrived, it became
abundantly clear they sold when price immediately declined at the next day's open.
3 - Disproportionately large trades aren't only used to help identify trade entries. Sometimes they're best
used to identify exits. If you were long VERU when that print arrived, that would be a strong signal
to consider exiting and taking profits. Other times they can be helpful in determining when NOT to enter a position.
If you had no position when that print arrived, and had been considering entering a long, that
might be a strong signal to stand off.
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