We tend to shy away from low priced stocks with low share floats, however we think Revolution Lighting Technologies, Inc. (RVLT) presents a very special opportunity based on the information below.
RVLT has a float of just 11.45 million shares. This small number of shares causes the stock to move either up or down very quickly once it gains attention from either bulls or bears.
Of the number of shares trading in the market, 18.65% are sold short. This short interest is high enough to cause a stock to trade hard and fast to the upside if a short squeeze were to take place.
This makes the table above all the more interesting. The Chairman and CEO of RVLT has become a very active buyer in the stock over the past month. He has increased his stake in the company from 50,000 shares up to 950,000 shares with four seperate purchhases in January. A value at the time of purchase of over $3,750,000. The Chief Financial Officer of RVLT also purchased 195,000 shares worth $540,000 in January.
Now let’s view the chart below.
Over the past two months, RVLT has formed a rounded bottom basing pattern. The red box highlights how the stock pierced the prior high three times in the last seven trading days without backing off while the broad market has been in the midst of a strong correction. There is limited resistance up to the descending green trendline, but if RVLT gets moving to the upside and short covering kicks in, we don’t think it would be out of the question to consider the 2nd and 3rd target levels noted on the chart.
As for a stop, we would be more inclined to take a position sized on the willingness to hold until targets are achieved. In this case, we would only be willing to cut the position if we discovered current insiders had sold their positions. One might think of owning shares in RVLT akin to owning calls options with no expiration date.
We have no idea what has motivated the two company insiders to purchase such a large number of shares in such a short period of time, but we think the ingrediants of large insider buying, a basing chart pattern, and a healthy committment on the short side leave RVLT vulnerable to a sudden move higher in the near term.
We have called this a special situation trade because of the volatile nature of low priced stocks with small floats. This trade should only be considered by more aggressive and experienced swing traders.
To access the ShadowTraderPro Swing Trader each morning on your ThinkorSwim Platform by TD Ameritrade, please follow these steps.
1) Go to the Tools Tab
2) Select myTrade
3) Go to “People”, then “Technical Traders”
4) Scroll over the ShadowTrader Swing Trader and select the “Follow” Button
5) Click on the Swing Trader Icon
The menu of our daily posts is found in the left column.
The full version of this article appears in the ShadowTraderPro Swing Trader newsletter which is published daily. The Swing Trader newsletter delivers value to its followers on multiple levels. The newsletter stands alone as either a purely informational vehicle for those who like to find and trade their own setups, or as a daily resource for trade ideas. These ideas are listed in the Bulls & Bears section and may also be traded live via MyTrade alert by our team. Each day’s edition contains commentary on either the broad market or a particular stock in focus (Looking Ahead), a heads up on upcoming economic and corporate data, and a look Under the Hood, listing what happened with market internals in the previous day’s session, along with /ES Pivots and Market Profile levels for the current day. The newsletter is sent out at night assuring that users have ample time in the morning to digest the information regardless of how early they get up!
Dovetailing with the newsletter are specific trade recommendations via MyTrade which are sent out as we find them. Long/short equity trades are generally concentrated on issues showing extreme relative strength or weakness to the market. Selections are further narrowed by volume convergence/divergence, sector analysis, and technical events such as candlestick patterns and trendline reversals. ShadowTraderPro uses both daily and weekly charts to scan for short to medium term swing trading opportunities with a time horizon of 2 days to 4 weeks. Clients will receive detailed posts for each and every trade entry and exit, clearly explaining the technical analysis behind each move, including any changes to stops or targets. These trades get added to the ShadowTrader Pro Model Portfolio, which is updated nightly and included in each day’s edition of the Swing Trader.