A big part of being successful investors is to know the type of trades we do. In the case of penny stock Castor Maritime (NASDAQ:CTRM), trades are often shorter term and perhaps more active, and with lower certainty levels. Investing in CTRM stock requires one of two key ingredients.
The first is for investors to have strong conviction that the company will turnaround in the long term. For that, the strategy is easy. Investors would buy it today and hold it for the duration.
The second involves traders checking the charts for clues. A lot of investors are still skeptical about accepting the importance of charts. Reading the technicals has become more important than ever with the advent of machine trading.
CTRM Stock Has Clear Battle Lines
The statisticians tell us that computers are responsible for more than 80% of all trades. This leaves us humans at a disadvantage unless we think like them. The only way to do that is to actually use some technical analysis. This doesn’t mean that we all have to be experts in complicated strategies. The basics of reading a chart require no tools or special special skills.
The easiest thing to do is to look left on the chart before making trades. CTRM stock is currently 75% off its February highs. That’s devastating to those who bought into it too late. The goal is to determine if this is an opportunity to buy it for a recovery trade.
The past price action suggests that there will be sellers lurking above. By looking left on the CTRM stock chart, there was a clear level of contention last year. The range was just above current levels, which makes it a difficult zone to rally through. The first sign of progress is if the bull can exceed this week’s high. This coincides with the gap it left from the April 5 debacle.
Taking out a prior fail would invite momentum buyers. The burst of energy could help it get through the resistance above. Exceeding $1 per share is going to be very difficult without specific reason. Therefore traders should remember to book profits along the way just in case.
For the same reasons that I expect buyers above 60 cents per share, I also expect sellers below 45 cents. If CTRM stock falls below mid-April levels it would accelerate to the downside. Active traders should set stop loss levels there.
Fundamentals Are Not an Apparent Problem
The fundamentals of this company on paper look good. There’s a disconnect between what’s going on in the charts and the actual prospects of the company. The profit-and-loss statement is showing good progress over the last few years. The net income is going the wrong way but the growth is there to help tolerate it. There is no obvious point of contention without getting too deep into it.
CTRM currently has clear lines of battles and we noted them above. There is an added danger from trading a low-dollar stock like this. The perception is that it’s cheap, therefore it’s not dangerous. In fact, it can easily lose us 100% of our investment just like a stock that has a much higher price point. The rules of engagement will have to apply to penny stocks as well.
The analysis I just shared with you required absolutely no tools. I only used my eyeballs to find relevant levels above and below current price. The easiest way to predict what will happen next is to look at what happened last time we were here. That’s what machines do.
Next, we have to consider who is controlling the price action. CTRM has been on a lower-high trend for a month. In the last two weeks it has also started a higher-low trend. The two are now pinching together to tighten the trading range. This means that there is a move coming, so both sides need to be ready.
Whichever battle line fails first, there will be momentum in that direction. So if the bulls are able to exceed this week’s highs, the bears should be ready to take some heat up to 80 cents.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.
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