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Penny Stock Basics

KRTX Supernova: Penny Stock Patterns on High-Priced Companies

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Written by Timothy Sykes
Updated 1/17/2023 12 min read

I talk about penny stock patterns a lot. No big secret that the supernova is one of my favorites.

And now the market’s heating up. The summer trading lull is over, and fall almost always comes with more opportunities and better trading setups.

This week, many of my students capitalized on Karuna Therapeutics, Inc. (NASDAQ: KRTX) — one of the largest supernovas of the year.

Now, you may be thinking … “But KRTX isn’t a penny stock — how can it be a supernova?”

Lately, I’ve covered a lot of great plays in my penny stock niche, but the patterns I teach my students can apply to any stock in any market. 

The key? You have to completely understand the patterns. I’m not talking about briefly reading one of my articles or half-watching a video lesson. I mean, you gotta FULLY digest the pattern.

Once you understand the pattern, you don’t have to stick to just low-priced stocks. You don’t even have to stick to U.S. stocks. I’ve heard these patterns can work in China, the UK, Germany, and Australia.

I even have students who use my patterns on crypto stocks.

Again, the key is to understand it. And once you do, open your mind to all the places you can use it in the finance industry.

Let’s look at a great example…

Penny Stock Patterns in Large Caps

Mark Croock, a Trading Challenge Millionaire mentor, gave a great speech about using penny stock patterns on large companies at the 2019 Trader & Investor Summit (order the DVD here). He still trades penny stocks, but he’s up over $260,000 this year, largely from playing Beyond Meat, Inc. (NASDAQ: BYND) like a penny stock.

Similar to the supernova that occurred with on KRTX, BYND had a huge short squeeze at the beginning of 2019.

beyond meat stock chart
BYND daily candle — courtesy of StocksToTrade.com

From his decade of studying, Croock was prepared to move on the BYND supernova.

It may seem scary to transition from penny stocks to large-cap companies, but the patterns can be nearly identical. If you’re willing to study enough, you can master any pattern in the market.

Croock didn’t just wake up one day and decide to apply the supernova pattern to large caps. He studied for years. He watched all 6,000+ of my video lessons three times. That’s the kind of dedication you need to become a profitable trader.

KRTX Supernova

On the morning of Monday, November 18, KRTX published a press release about one of their Phase 2 drugs. The drug, designed to treat acute psychosis in patients with schizophrenia, met the primary endpoint. For biotech companies, the phase results can be a huge catalyst that makes or breaks a company.

The press release was exactly the catalyst KRTX needed to start its colossal supernova run.

The previous Friday, KRTX closed at $17.80 and began to gap up once the press release hit the wires. KRTX opened at $32.50 and immediately began to have a morning spike. Despite being a higher-priced stock, KRTX had a low float, allowing it to reach a high around $100 on the first day of the move.

KRTX stock chart
KRTX 1-day, 1-minute candle — courtesy of StocksToTrade.com

I can’t tell you how many people in other chat rooms kept saying, “I’ve never seen anything like this, it has to crash.”

A lot of over-aggressive short-sellers kept trying to predict the top. When KRTX started to consolidate around $65, they started saying, “This is definitely over!” 

But KRTX was up from roughly the $30s to the $60s. Rather than waiting for the backside, they all started to short midday…

… and they all got crushed into the afternoon.

The stock didn’t spike a little, like $65 to $70. Oh no … It went full supernova  — it went from $65 to $100. 

Then … even at $100… the shorts were excited thinking $100 was the top. But it curled back around and tested highs again into the close.

So don’t short and think you can guess the exact top. Never underestimate the power of a supernova on its first green day.

KRTX Offering

Shortly following the close on November 18, KRTX execs filed a financing for 2,600,000 shares. The company needed money to fund the third phase of its study and work toward full FDA approval.

So, they tapped into the public market. Financings are standard for companies after an extensive run. Financing firms often give them more money due to their higher share price.

And these financings aren’t necessarily terrible for a stock price. Companies simply need more money for research and development, and financings are the easiest way for a company to acquire a large amount of money.

But sometimes shady penny stocks get trapped in toxic financing deals, which is devastating to shareholders.

Typically, the offerings attract short-sellers because an offering is a negative catalyst. So, the remaining over-aggressive short-sellers who didn’t blow up their accounts on the first day of the move started to short KRTX after the offering.

The same thing happens with every supernova … too many short sellers are too early. 

The excess of short-sellers squeezed KRTX even higher on the second day. The offering created a little gap down on KRTX. But on the second day, KRTX hit new highs of $152. 

KRTX 2 day chart with 5 minute candles
KRTX 2-day, 5-minute candle — courtesy of StocksToTrade.com

Where do I think KRTX will go next?

Honestly, I’m not sure. It will likely pull back, but I don’t know when that will happen. It could keep squeezing higher. I can’t say it enough: You never know how high a short-squeeze supernova can go. 

In only two days, the powerful KRTX supernova started at $17.80 and hit a high of $152.

KRTX daily chart
KRTX daily candle — courtesy of StocksToTrade.com

That’s nearly 10 times in only two days! It’s unlikely someone held the entire time, but many of my students took the meat of the move and locked in their singles along the way.

PapaJohn’s Killer KRTX Trading

I never traded KRTX because I prefer to stick to lower-priced, OTC stocks. But many of my students took the patterns I teach and applied them to KRTX.

One of my top students, Profit.ly user papajohn, traded KRTX multiple times and locked in over $4,200 by the end of the first day!

He’s been studying in my Trading Challenge for nearly two years. He took the time to digest my patterns and applied them beautifully to KRTX. He even called his entries and exits live in the Trading Challenge chat:

11/18 9:39 AM papajohn: sold 1/4 $KRTX at 42.6 and 1/4 at 44.82 from 35

11/18 9:44 AM papajohn: sold more $KRTX at 46.79

11/18 9:45 AM papajohn: out of $KRTX for $1,864 profit!

He started the morning with a solid single and continued to stalk KRTX on another excellent play.

PapaJohn’s been around long enough to understand how to capitalize on an ideal play…

11/18 11:43 AM papajohn: back in $KRTX at 61.20, sold some at 65.29 and 66.90

11/18 1:49  PM papajohn: back in $KRTX at 75.92, sold at 79.79, 82.80, and 84.99. 25 shares left

11/18 1:53 PM papajohn: out of $KRTX at 89.30, total profits on it today up to $3,200 now

PapaJohn sold his shares into strength and repeatedly took the meat of the move…

11/18 3:07 PM papajohn: back in $KRTX at 80.62

11/18 3:19 PM papajohn: sold more $KRTX at 94.49

The trades papajohn made were some of the most impressive live trades I’ve seen from one of my students. He called every trade live in the Trading Challenge chat and answered many of my new student’s questions.

By the end of the day, many students couldn’t believe how well he understood the supernova pattern. One even said:

11/18 3:09 PM MoonShot: somebody pull papajohn off $krtx, it’s not a fair fight, lol

But it was a fair fight! He put in the time to digest the pattern and applied it correctly to KRTX. Well done, papajohn!

Congratulations to My Students

And papajohn wasn’t my only student who did fantastic on KRTX. Many of my students followed my rules and profited handsomely.

From the Trading Challenge Chat Room

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11/18 9:51 AM RMcInarnay: Missed my fill on 45 for $KRTX … thing is cruising

11/18 10:45 AM Steven419: Any thoughts on shorting $KRTX?

11/18 11:19 AM Steven419: Thank you I will just watch $KRTX

11/18 12:23 PM SatelliteIncomeUnlimited → nrddct: made 927.40 on $KRTX whew

11/18 12:53 PM RocUWorld: with $krtx supernova good dip buy opportunity later?

11/18 1:07 PM jobeauthement: $KRTX, blow up shorts like its field day in elementary school lmao

11/18 1:48 PM jspinoza3: $KRTX here to remind us that sometimes they just don’t retrace much before going higher. no big discounts all day long

11/18 1:59 PM RMcInarnay: Wild that $KRTX closed at 17 yesterday, lmao

11/18 1:59 PM shotime: I’d say $KRTX qualifies as a supernova!?

11/18 2:10 PM sherkhan12: $KRTX setting up nicely on a monday for other sympathy plays to follow this week….

More Comments From the TimAlerts Chat Room

Michael Goode, a TimAlerts moderator, was on top of the KRTX press release early:

11/18 8:47 AM MichaelGoode: $KRTX +77% $31.40 $715m mkt cap https://finance.yahoo.com/news/karuna-therapeutics-announces-karxt-met-110000768.html Karuna Therapeutics Announces KarXT Met Primary Endpoint in Phase 2 Clinical Trial of Acute Psychosis in Patients with Schizophrenia

11/18 9:41 AM joeylowe: Welp that was an easy grand on $KRTX. Toodles!

11/18 9:52 AM EAdapon: damn sold $KRTX too soon. sold at 41

11/18 10:13 AM Androo: $KRTX out at $63.77

11/18 10:12 AM Androo: $KRTX in at $59.61

11/18 1:09 PM EAdapon: wow almost half a billion dollars in volume for $KRTX

11/18 2:00 PM mckeone: $KRTX … daaamn … made $1800 on this today … best trade in months

These students studied hard and prepared for this play. Supernovas like KRTX don’t happen every day, but you should always prepare for them. If you’re just getting started and don’t know where to start, study my FREE penny stock training guide.

Penny stock patterns don’t have to just be for penny stocks. KRTX is a stellar example of the supernova in a high-priced stock.

[Please note these results are not typical. These traders have exceptional knowledge and skills that they’ve developed with time and dedication. Most traders lose money. Trading is risky. Do your due diligence and never risk more than you can afford.]

Do you use my penny stock patterns in different niches? Comment below, I love to hear how all my readers are doing!

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Author card Timothy Sykes picture

Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

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* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”