Secondary offers can throw a key in the best of trades
Highly active traders are no doubt familiar with secondary offers and the potential damage they can inflict on well-constructed portfolios.
“These deals often happen when there is good news or a solid chart and can be quite daunting as they kill what are nice technical setups,” said James “Rev Shark” Deporre, writing in Real Money recently.
Deporre feels your pain, because he recently went through the same ordeal by creating a position in Hut 8 Mining (HUT) – Get the HUT 8 MINING CORP report.. Based in Alberta, Canada, Hut 8 is a cryptocurrency miner offering great prices on energy, which is essential for crypto mining. It not only mined bitcoin, but branched out into ethereum.
“If bitcoin and etherium continue to rise in the coming months, there is no doubt, in my opinion, that HUT will do very well as well,” said Deporre. “I still love to trade, but the question is, how do you deal with that kind of setback when a good trade now looks technically mediocre?”
Hut8 priced its secondary offering at $ 8.55, which makes the graphics setup that was in place previously irrelevant. “My approach is to use a mark-to-market approach,” he said. “I will now ignore my original base price and treat the stock as if I had bought all of my stock at the secondary price of $ 8.55. This is the only technical level that is significant at this stage.
If a secondary offer botches your trading charts, try resetting your thinking. “A lot of HUT holders are probably squeamish about the negative surprise, and they’ll dump the stock and move on.” said Deporré. “They don’t want the emotional cost of this failed setup to negatively impact them, so they take it off their screens.”
Still, not much has fundamentally changed for the title and it retains robust support levels.
“The $ 150 million offering is small enough for a stock with a market cap of around $ 1 billion,” added Rev Shark. “And nothing has changed when it comes to bitcoin or ethereum, which are working well at the moment.”
So, yes, it is very annoying to have a good setup ruined by a secondary offering. “The best approach is to seek the desirability of the disaster, rather than dwelling too much on what has already happened,” said Deporre.