Since its stock has quadrupled since the beginning of the year, readers of this blog know I’ve been stalking microcrap momentum play Converted Organics (COIN) and its warrants (COINW). Focusing solely on buying breakouts and shorting breakdowns, I’ve had some success and failure, my biggest gain stemming from shorting into its cracking of sideways price action back in January, my biggest loss coming from when I was squeezed out the day before after getting unlucky with some news. As many of you know, I make my money when these microcrappers crap out, so the lack of huge trading profits has not concerned me in the least. As long as I kept up with my stalking, I’d inevitably catch my prey.

For the most part during this latest surge, I’ve remained on the sidelines—too scared to buy in—waiting for a similar breakdown to short into. Despite breaking its previous high of $14 with four straight up days to the high $16s, the breakout was hardfought and the volume decreased each day. Very bearish—particularly encouraging was a late afternoon fade on Thursday—but would it first go out with a bang? After all, the company had proven it knows how to pump its stock, timing PRs perfectly to squeeze the shorts.

On Friday, I awoke early to reserve shares just in case it was the reversal day. Thinkorswim had no shares of COIN, but I was able to reserve 300 shares of COINW. Sweet: lower priced and more volatile, just had to watch out for its nasty spread between the bid and ask (usually 25-40 cents).

At the market open, COIN and COINW tanked hard, each down $1+, okay, this was good, crack in the sideways price action—not perfect, but trading between $16.50 and $17, aka close enough, the momentum clearly cracked, the question was would it at least bounce first (I hate shorting into crashes due to the risk of bounces). Fortunately, the stocks did bounce, COINW nearly $2 from $10.50 to the unchanged mark at $12.50, but no more—a wall of sellers entered. Summary: Tank, bounce, no breakout, ideally I’d wait til the afternoon to short, but since the spread was so ridiculous, I had to get in early—so I shorted 300 shares at $12.35ish. Thinkorswim chat guy screwed up my executions a bit, but after some more chatting, it was all fixed within 5 minutes (no other firm would do that).

With the wall of sellers firmly in place when COIN was just up 20-30 cents on the day, the overall market plunging, no well timed PR and decreasing buying volume, the stock went from slightly positive to slightly negative on the day. Within minutes, I was up 75 cents/share on my short. Cool, I’d hold, stocks like these usually stayed slightly negative for hours or days before the big plunge. Unfortunately, I wasn’t comfortable just waiting. Since it was still only the late morning (not an afternoon fade) and COIN had bounced on each dip, I covered my 300 shares at $11.34, a nice quick $300 profit.

Buuuuuut, COIN was much less resilient than I expected and within an hour it began plunging past the early morning lows and COINW dropped to $10.30—damn an easy $1 I left on the table. Another hour and the plunge turned into panic, COINW was now at $9.30, down $2 since y cover and $3 on the day! As usual, I had a decent profit, but I left a lot on the table.

The good news is my new publishing and trading business model means my readers—who benefit from my detailing ALL my mistakes and cannot be any worse timers than me—profit more (and judging by the comments where some people claim to have made as much as $11,000 on this, my plan is succeeding)!

Given the failure of the afternoon bounce, the weak close and confirmed first down day of the pattern, a Monday morning drop is likely, so I’d have re-shorted into the close if possible. But there weren’t any more shares available to short of either COIN or COINW—welcome to short selling microcrappers! Still not sure how much this collapses, at least short-term, it’s either the beginning of the end or a bump in the road, to be determined, doesn’t matter to me either way.

What I did right:

-Recognized the chart pattern as a Supernova, as detailed in PennyStocking

-Patiently waited, not shorting into a breakout until the weak price action really demanded it

What I did wrong:

-Shorted in the morning, making me uncomfortable, leading me to take quick profits
(gift and the curse, as morning turned out to be ideal time to short)

-Covered quickly (another gift and curse, my entry was unusually perfect so even with my quick cover, it was a solid trade/profit)

Tags: charts, Hot Stocks, Impatience, Patterns To Short, Short Selling, stocks in play, Supernovas