We all knew this day would come. We just didn’t know when. At 11.45 am on 9 November 2020 (or ‘Vaccine Day’ as I hereby declare it) news of the vaccine hit the financial markets. As I was watching Games Workshop (GAW) I saw a spike on the one minute candle accompanied by large volume. I wondered if this was stock specific, so checked some heavily traded blue chips – lo and behold, Vodafone (VOD), Royal Dutch Shell, (RDSB), and International Consolidated Airlines Group (IAG), all had the same volume and volatility spike to the upside.
Something significant had happened. At the time, I didn’t know what, but quickly bought Restaurant Group (RTN), JD Wetherspoon (JDW), and tried to buy Jet2 (JET), which went unfilled. I then found out that there was talk of a vaccine.
I had been meaning to create a list of stocks to buy and a list of stocks to short should news of a vaccine be dumped into an intraday session. Unfortunately, it was still on my to-do list by the time Vaccine Day arrived, and so I was left scrabbling about rather than acting methodically. There’s no excuse for me here – vaccine news was a highly likely possibility and those who were prepared other than “long hospitality and airlines, short Covid testing stocks” had a far better day.
Still, it was an incredibly fun trading session. Despite it being obvious that a vaccine would sharply pop the valuation of Covid testing stocks, it was obviously not considered by many holders as many of these stocks dumped and closed between 40 and 50 percent down on the day. A potent cocktail of punter panic, ladders of stop-losses being triggered, and margin calls all served to destroy a lot of value in a single day.
There have been intraday bounce opportunities, but I suspect the magic is now gone. Stocks are not as fun when they are grinding through overhead supply and everyone is down. But when everyone is in profit and everything is possible it seems that no price is high enough for a seller. As I mentioned last week in Novacyt – The Rocky Road to Riches – if Novacyt’s (NCYT) share price fell through 800p then it was a short. It collapsed through 800p and hit an intraday low of 550p. And so, it is clear from Monday’s move that the landscape has now changed.
We are likely to see sector rotation regarding institutional money from stocks such as 888 (888) and CVS (CVSG) – both down sharply on the vaccine news. It’s not that people are going to stop gambling or taking care of their pets (at least, I’d hope not), but rather now there is more certainty in some sectors the money will move where the returns are to be made.
There are likely to be more twists in the tale. We are not out of the woods just yet. Delivering a vaccine to billions of people is not going to happen in short order. Testing is still going to be at the forefront of the fight. We are still, unfortunately, going to see many deaths. So, while Monday’s news is certainly to be celebrated, we should be prepared for future volatility to both the upside and the downside.
One stock that has been a beneficiary of the lockdown, but which escaped relatively unscathed on Vaccine Day is Halfords (HFD). A clapped-out retailer is not the most attractive business one may wish to buy – but as traders we are playing the chart. It’s an important distinction. Equities all look the same on a chart, just with different patterns. But play the profitable patterns often enough with sound risk management and you will make money. The hard part is remaining disciplined and not allowing your emotions to rule over sense and sizing.
Chart 1 shows the intraday chart of Halfords on the day the company released a trading update on 1 October. The company stated that its first-half profit before tax was expected to be more than £55m. Halfords didn’t actually state that the market consensus expectations were £55m, but it requires only a few clicks to check the forecasts on SharePad and access this information instantly. Be careful, as many a management team will try to hide the figures and replace market expectations with board expectations (which nobody much cares about), or simply use last year’s figures. Personally, I think companies should be stating the consensus forecasts, but then it gives me an edge over people who don’t bother to check.
The stock gapped up and was the result of an extended auction. An extended auction is when the stock crosses the volatility threshold on the stock and so is extended in order to alert the market and allow for more time for price discovery.
I continue to believe that auctions are brilliant opportunities for traders. Getting in on the auction can result in being in a position sometimes at the most competitive price of the day. And if the trade is wrong, you’ll know relatively quickly and can get out. Finding stocks that are trading ahead of what the market is expecting is a great way to collect a scalp in the market, as a good RNS can see institutions take or increase positions that can last all day and even into the next day. By riding the coattails of this buying we are trading the positive trend of momentum on strengthening fundamentals.
In Chart 2, we can see that the stock nearly broke out but has since reversed. I am looking to take a position here on the break of 250p, if it gets there. At the moment, the stock is consolidating, but if we see another solid update on trading it’s entirely possible it gaps up through the resistance and continues. Identifying stocks that are performing well both fundamentally and technically has been and will continue to be a winning strategy.
- Michael has released his UK Online Stock Trading Course. Investors Chronicle readers can download Michael’s book and learn more about the course by visiting www.shiftingshares.com/online-stock-trading-course
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