So I was on Friday with JC Parets and Spencer Israel for All-StarCcharts in their live morning show. And because of time constraints, we didn’t get to cover everything that I had put together, which is fine. That’s the way it goes. Conversations start happening and one thing leads to another, and I only had six slides to begin with, but we ended up having a really good conversation. It’s over. I’ll put a link to where you can catch the show, but I thought since I had the slides ready, maybe I’ll put ’em all together. Now before you get crazy, I’m not turning this show into something that we’re going to do for chart reading, so don’t get your hopes up. That’s what you can take the class if you want. So the first chart we have is this comes from MarketWatch. If you go to Google or whatever your favorite browser is and you type in say Nasdaq, short interest, there’ll be a few choices.
One of them is MarketWatch. It used to be CBS MarketWatch, I don’t know who owns it anymore. But anyway, it’s free. That’s watch I put it up there. No, I don’t deal with conflicts of interest. And what you can see pretty much is the names are ranked by the right most column here. That’s what percent of the float has been borrowed for the purpose of selling short. Now, if you are in the future space, you don’t care about this because these are stocks. And two, the borrowing mechanism is very, very different. You actually have to locate the stock, borrow it, then sell it short because you’re borrowing something that doesn’t belong to you. One, the old saying goes, he who sells what isn’t his and buys it back or goes to prison. And so I’ve made some money the past couple of years on short squeezes.
It’s something to happen in the commodity markets for sure, and with the leverage you can really make some good jack with the stocks. It’s a little bit different. Now, I will share with you the CFA types who evaluate these companies. They’re very, very smart people and the names that are on this list are probably here for a very good reason, fundamentally speaking. So this isn’t about calling anyone’s girlfriend ugly, but what you do notice from time to time is that the charts end up looking kind of bullish and obviously when you sell short, it’s a bearish. So now you have a divergence between fundamental analysis and the technical chart. And if you can find that they’re not necessarily even needles in the haystack, but if you can find one or two, it can really be quite something. So I’ll show you a few. I’ve made money with Crocs on this type of a trade in that would’ve been about April of 23, so a little bit about a year ago.
And then I’ve been in and out of Carvana and the one I want to talk about today hasn’t moved yet, but it’s kind of a setup that you might be able to work into your own trading strategy. So what you’ll do is you’ll go through these one by one and look for a chart that’s on the daily and maybe the weekly bullish. Don’t try to intraday this thing here because again, these people are smart and they’re short for a reason. You can see Carvana’s still on the list. I’ll have that chart up. The one I want to talk about is B Riley, which if you look here, 11 out of 16 shares have been borrowed to sell short. That’s a big number. So let’s take a look at B Riley chart has been a stage three downtrend and certainly it’s not without volatility. Look at that big $5 bar, but now you’ve seen it’s consolidated with a little volatility selling off under 20 here.
That’s the way it goes. And who knows, maybe this thing channels between 25 and 15 ongoing. But what I’m saying is, is that once you have that trend reversal where it trades through 25 up to 30 and it sticks, the shorts are going to start to feel the pain. And with 11 out of how many names 16 shares borrowed to sell short, you can find yourself in a situation where they’re all going to have to buy the thing back in with great speed. And it happened, like I said with a bunch of other names so far, and it doesn’t mean that the fundamental story necessarily has changed either. You can’t read into it. I’m just saying that if the trend is going up, the trend is going up that despite what the short sellers might think or feel, the bigger question you might want to even ask yourself is why is anyone, there’s a 75.
So three out of four shares have been borrowed to sell short, the stock is at three bucks. What’s the expected value of the trade? Are you sitting in this short thinking that it’s going to go to zero? So there are ways to trade this poorly from a fundamental standpoint. Like if you looked at this chart and saw where it came from, it’s down 90%. So at that point you will have probably wanted to take your money off the table, but nonetheless, what you’d wait for is some type of trade with volume above 25 have its stick and see where it goes from there. There’ll be enough time for you to make some money so you don’t have to get to precision type of entries. Doesn’t necessarily matter. To give you context too, what happens when it does move? Do you feel like you’ve missed it?
Here we’re looking at Carvana with the 200 day simple moving average that you can see here. And on the bottom you can see short interest in the number of shares that have been borrowed for the purpose of selling short. So you could see it reached a height of about 50 million, 53 I think was the actual number. And you can see the stock was under five bucks and it’s down from two 40. Another type of situation. Why are you still short after this big move? Did you finally get in short down here after you’ve missed the entire move? I have no idea. Now you can see patterns. Maybe this is head and shoulders down, I don’t know. I’m not a pattern guy. And you can see gaps. Gaps don’t always have to get filled. Maybe this one will, maybe it won’t. Who cares? It’s always a stupid argument.
Why would you care if that shouldn’t stop you from putting a trade on if it’s moving? Nonetheless, you can see that despite the stock being up, what 15 fold, right? Look how much it’s gone 16 fold. If you look at the lows at five and the stock’s about 80, stock is up 16 times 16 fold and the short interest has gone down, but it’s still not enough. So in terms of like did you miss the trade or not? As far as short squeezes are concerned, my answer is absolutely not. This is more to this trade and I think the fundamentals are changing. I’m not Joe CFA, I’m not trying to be Peter Lynch, I’m just trying to be practical here because folks are like, man, look where it was. I’m going to anchor Now. If you put the one year chart up and you’d be like, look, here’s a January 23 year to date, maybe 15 month chart.
You’re like, oh, it was here at the low and it’s here now. I’ve missed it. It’s in the top right corner. Look, this thing could just be getting started. There’s still how many we can see back here. Carvana, 35% of the stock is still short. The stock is up 50% year to date. So this is what I mean. If you know how to trade you, I don’t want to say that you’re going to go out and do this spiritually, but the shorts are going to get punished. And if B Riley breaks out like that, we can see that the stock’s already been up to, it’s been 60 bucks, right? So there’s room to go here for the stock to get back to where it was on its heyday. This one here, you’re over your 200 day. So take a look at that. You might be able to the information as you can see, why is it like this?
It’s because the information is only updated every two weeks. NASDAQ has a handful of names themselves, but I think you have to pay a premium. If you want to get the information for free, you can go to market watch, which is where this is from. This is Market Watch. I didn’t put it together, it’s not mine. And if you go look it up, you’ll probably see the same names because it won’t change until the end or whatever. Probably March 15th, they’ll update this to carry through the full month of February. It’s always two weeks behind and it reports in two week increments. So moving on, let’s take a look. In commodity land, we are looking at crude oil. Now heat and oil and gasoline. Again, these slides were put together to discuss with JC or Juan Carlos to his friends in the morning of March 8th on their live stock market show on their YouTube channel.
And one of the things I would’ve said is, if you’re bullish or bearish on crude oil, take a look what’s happening in the strip or what we call term structure. Commodity is obviously very, very different from stocks in that if you’re looking at SMCI or Nvidia, or even Bitcoin for that matter, there’s only class of stock. So there’s not a lot to look at. You can uptime and downtime I suppose, but with futures, there are delivery months and those months are all correlated to the physical. Remember, it’s the physical market that moves first and the futures markets follows. It’s not the other way around. Most people look at futures, especially folks on the left want to say speculators have no business being in the thing. Well, the reason what we see here is a market in each three of these markets from crude, we have heat and oil.
Here in the middle, the ticker is ho. And then you have RBO gasoline, right? That’s the base blend. I think it’s reformulated blend stock for oxygenated blending. And it was no lead started in I think 1983 and the market’s inverted, right? Each of these markets are inverted or considered to be in what we call contango. And that’s when the front months are higher in price than the successive months. So if you look here and these charts, these were printed out very late in the evening on Thursday, March 7th when I was putting them together for again jc. So you’ll see April expiration is higher than May, is higher than June, is higher than July. If you look at heat and oil, it’s the same type of a deal, right? June delivery is a full 10 cents below April at two 70. And if you look at gasoline, it’s the same thing.
It doesn’t necessarily have to be by all that much, but you can see that the front months are higher in price than the successive months. So what that saying is, there’s a few things going on here. One is usually this is tied to a tightness in supply or some type of disruption. Now you could say, is it the Red Sea stuff? Is it the fear? I’m sure you could say that’s part of it, I don’t know. But the point being is there’s something going on with supply that cannot meet demand. And so the price is rising and the markets are telling you give us everything that you have supply wise right now. We’ll actually pay you more if you choose to put it in storage, we’re going to penalize you a dollar 25 right per barrel. You see? And that’s substantial because it’s a thousand barrels is the contract.
So they’re saying demand is so tight, we’re willing to pay you more for it now than if you decide to put it in storage. The price is less. So this is another one of the, there’s really two functions of commodity futures. The first one is risk transference, right? It’s not a capital asset, it’s an insurance market. You’re selling or buying or selling fixed amount of a commodity of a specific grade, or perhaps several of them within reason, and they’re all listed on the exchange. If you go to cme group.com and look at nymex, it’ll tell you what’s deliverable against the contract. If you look at same thing with Chicago Board of Trade Beans, you’ll see what different grades of beans can be delivered and what you would add or remove from the price for that type of settlement depending on the grade of the physical.
So again, when markets are tight, the cash market probably sells $80 or more than the futures market is the next highest, and then they go down successively. So people are willing to pay up to get what they need. They’re willing to pay a premium. Normally the markets are what we call carry charge markets where supply is meeting demand and each successive month is a little bit higher in price. So that kind of provokes a response of storage because you’ll get more money in the distant months than you will in the front months. So this is typically very bullish for any particular underlying, you’ll see this happen in physical commodities. I’ve seen it happen in natural gas. I’ve seen it happen in hogs. I’ve seen it happen in cotton. I mean I’ve seen it happen in almost every commodity. If you’ve been around long enough, you can see this happening where again, the physical market is what drives futures not the other way around.
There has to be tightness in physical else. It wouldn’t make sense because only one to 2% of these contracts are actually getting delivered against most of them, even if they’re being used as hedges, are being offset beforehand. Now, if you scroll down, we’ll take a look and see, this is the April crude oil, and who knows, is it bullish? I don’t know. It looks like it wants to push up above 80. But you can look at the chart and kind of see for yourself. Now, this is the big contract. So you’d be looking at say, $2,000 of swing in your equity between 78 and 80, right? So it’s a thousand barrel contract. So every dollar moves a thousand dollars to your account. There might be smaller contracts. I don’t know about that because I don’t trade ’em. Same thing with heat and oil, gasoline. I think the heat and oil chart’s a little bit messier, but here’s April gas, and you can see it looks like it’s rallied off of 2 25.
So you can look at the chart, at least you know that the fundamentals are behind you. Term structure is enormously important in the world of commodities, and it’s a huge asset for you to study because you don’t get that with stocks. You only have one class of stock that you can study that you can look at, and you’ll have to make ends meet with that. I think this is probably one of the reasons why people start uptime and downtime and they’re looking at 45 different one minute, three minute, five minute, 65 minute. That doesn’t help you if you can’t see it, in my opinion, on the weekly or worst case, the daily, then you can’t see it. There’s nothing there. And that’s true for scalpers. Try to make as much money as you possibly can. And to me, I’d rather not trade than have to put myself into a situation where I have to scalp.
So let’s continue here. You can call these up light crude. So the difference between light crude and say London oil, north sea oil has to do, or sour has to do with the sulfur content because a lot of this comes down to when you refine stuff, what is the impact on the environment? So that’s all that means with the difference between light crude, sauer crude. It has to do with the percent of sulfur that’s in the crude oil itself before it becomes refined. Gasoline is a product, so the crude oil is refined into products, and there’s a whole slew of them, right? It’s heat and oil and gasoline that you can see that are very liquid, no pun intended. But then there’s also kerosene. There’s jet fuel lay, right? So there’s all of that stuff that goes down. Now, there’s another little trick I want to show you here, and this is the big natural gas.
This is April delivery. It’s 10,000 BTU. So every penny is a hundred dollars move. And it might be big for some of you, I don’t know. You can see we certainly have had the market sell off with some corrective action in the middle here where there was a rally. Who knows if that was news, could have been war, I don’t remember. But there’s another thing that’s available to you in futures that is not available to you in stocks in the same manner, and that is where you’re able to buy one contract and sell another one against it, thereby creating a calendar spread. So if you thought, because there’s no markets can typically only trade to full carry when they’re in normal markets or carry charge markets, when the markets become inverted, there is no upper boundary as to how high may and go above June.
So a lot of traders, instead of just buying May, thinking that it’s a bull market in crude, it very well may be, I don’t know, they’ll actually hedge themselves because spreads are hedges. They’ll buy the May and they’ll sell the June against it, thereby thinking that may will create distance between itself in June because there is no upper boundary right now. That looks like 59 cents on the screen between these two, but there’s no reason it can’t go to a dollar. And I’ve seen in some of these contracts where it can get very, very large. And so if you do have an opinion bullish, a bearish on, say, natural gas for example, this would’ve been three 20 to two 20. So that’s $10,000 move right here, right over, what is that? November 6th to the middle of December. So it’s about five weeks made 10 K per contract, and it wasn’t without some rumblings here.
And then from, let’s call it the 15th through. So in another three weeks, it kind of rallied off the load. Call that two 10. So it went up 50 cents, so that’s 5K, and then it sold off two 60 to one 60, another 10 K on the way down. Now, that might be a little strong for some of your stomach linings out there. Now there’s probably a smaller contract you can look at, but what I like to do is say, okay, what’s right under everybody else’s nose is that people aren’t necessarily seeing that they might not be able to trade because they just don’t know about it. And that’s through a commodity spread. And so if you look here, what we’re looking at now is the march versus the April contract. And so if you remember, this was a $10,000 move coming down through here, and then it was a 5K move up here.
But look at the difference in prices. Each penny is a hundred bucks. So if you look at this move here, it looks like it’s down or 2 cents below par, and then it rallied to five. So that’s only 800 bucks. So there’s a way that you can deliberately take the sting out of the trades if you are looking at the spreads and the relationships, because this is still a pretty damn good move. If you sold the breakdown here, you would’ve, this isn’t enough to really knock you out. It’s like 2 cents. Move sold the breakout at 20, it was straight down to minus 2 cents, so 22 cents or $2,200 per spread. And that all happened in it gives you some staying power too. You could have sold that breakout, call it halloweenish, and by the second week of December, you just kept making money, making money, making money, and it gives you some staying power.
Why? Well, because you’re on both sides of the market, you’re simultaneously long and short a contract, two contracts that are highly locked into the physical contract, like they’re correlated to the physical, is what I was trying to say. Some people have a way with words and other people not have way. So you can make a bunch of money. When you look at the spreads with equities, you have to do what we call pairs trades, where you might say, buy one chip maker like Intel versus a MD or a MD against Nvidia. It doesn’t matter to me, but that’s typically what they do is they buy one, they buy the strongest horse in the barn, they sell the weakest name in the sector. Short this way, if there is corrective activity in the market or the sector, the short sale takes a little sting out of any corrective activity. I’d say the best person who, well, certainly one of the more popular people who’ve done this a lot over time would’ve been Julian Robertson of Tiger Management. So you could investigate this to see that it’s a good
Fit if you want to support the show. We cover all of this every week, both in the live group and in the recorded material that’s online for the online only program. There’s a whole plethora of this stuff up there because then we look into like, okay, well what’s your psychology here? Why would you get psyched out of a 2 cent move? You know what I’m saying? Or if you knew the thing could trend, why would you feel good about taking two or 3 cents out of the trade when you had a 25 cent move, right? So we talk about the psychology and why you do what you do. So that’s probably where I’m going to keep all this material, excuse me.
And I keep feeding that beast. So every week there’s more material that gets up there. The more that I see the types of things that I look at, the trades that I’m putting on, I’m not a big braggart, as you can tell from my book. The book was just a whole slew of stuff that I failed at, even though during the window of time I was making fantastic amounts of money, especially after I got through my hazing period. So anyway, if you like this kind of stuff, you’ll see a lot of it there. It might be a good fit for you. I like to talk about the psychological because that’s really what’s driving everything. That’s the behavioral software. We can all look at charts. These charts are courtesy of bar chart. I have their permission to use them. That’s why I left the watermark on, I don’t have any financial relationships, but these are things that you could replicate on your own for free.
You don’t need premium services to find all this stuff. And that’s kind of even how I traded. I remarked on the show as JC started poking fun at me, which he typically does, how many monitors you have, this and that. And I said, I have two mostly for producing content, though it’s not for trading, it’s for producing content that shows up on YouTube or in the lessons. And so I mentioned to him, I said, it’s interesting that you brought that up because in oh 5, 0 6 when China was buying everything under the sun, I had big positions in copper, gold and sugar. And I walk through this as a case study. Again, it’s online. I had a rollover account with like 50 K, and in nine months it was up to 280 k. So I have all the statements in the confirmations and the charts, and we go through all that stuff.
But more importantly, what was I thinking? Why was I had positions where I was up 20, 30 k and I was taking it home every night in the sugar trade I had, the initial stakes were on before it really started moving for six weeks before it really broke out, above 12. Anyway, that’s neither here nor there. The point is that if you can’t marry the psychological up with the chart stuff, it falls flat really, because any idiot can read a chart at this point. You know what I’m saying? My dead grandmother has an opinion on Nvidia. So I don’t know that it doesn’t really help you to just talk about trading models unless you talk about what the emotional responses are likely to evoke from you while you’re in the trade, because I don’t advocate scalping or day trading. I want you to make real money and make as much money as you can.
And we talked about this with jc. We talked about Pareto efficiency. How can you make the most amount of money for doing the least amount of work? What I don’t really get frustrated on other people’s behavior because I’m not codependent, but I feel like too many people are doing too much work for too little money. And when I have evidence that the market works out, at least on average, if you’re playing probabilities and odds, it doesn’t work out a hundred percent of the time, but the odds are in your favor. When you stick with your winners to make more money, you have to investigate your psychology as to why don’t you do that? What’s the power of the short-term win for you psychologically that robs you of more money in the future and worse that you’re okay with?
Because the answer is that there’s no guarantees. That’s not the answer, because that’s armchair. Like, hey, nine times out of 10 breakouts, pull back. That’s not scientific. That’s armchair quarterback and bullshit. That’s never going to fly in my house. You’re going to have to do your homework and know what you’re talking about if you want to debate me on that. So know what the expected value of his trade is. And that’s a good starting point. Anyway, I thought this would be interesting to share with a wider crowd, but time constraints, like I said, weren’t, weren’t there. If you like this video, there’s a bunch more like it right here.