If I had to sum up trading during the pandemic, I’d say this …
Nobody knew how crazy it was gonna get.
Sure, there were warning signs that COVID-19 would have an effect on the stock market. I actually started warning about the coronavirus way back in January … I knew enough from the past Ebola and MERS outbreaks to know that it could create moves in the market.
But I had no idea how big it would be, or how insane the market would become.
In spite of the fact that the markets have been overall pummeled and unemployment has been driven to sky-high levels, there have been a ton of incredible opportunities for penny stock traders.
Let’s look at how the pandemic has affected trading so far, and how smart traders are making the most of the action.
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Crazy Volatile Market
In February, the stock market had its worst week since 2008. Fear over COVID-19 was strong, and we were contending with the oil price war …
Suddenly, after a 10+ year bull market, we found ourselves in a bear market.
Selloffs and despair abounded. On one hand, you might think this would be the worst time ever to trade. If you were trading large-cap companies, it kind of was.
But for penny stock traders, it was the exact opposite.
All of the aforementioned factors created plenty of market volatility. For smart traders, there have been a ton of opportunities.
Here’s what’s happening…
Pandemic Plays and Sympathy Plays
For traders who only look at the stock market through the lens of what the news says, it’s been a real downer for the past few months.
The beautiful thing about penny stocks is that you can adapt and find opportunities in any sort of market condition.
Even in the grizzliest of bear markets, there are still certain sectors that will spike. During the pandemic, it’s mainly been plays that are either directly or indirectly related to the virus.
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Virus and Treatment-Related Stocks
Early on, the most obvious spikes were related to virus treatment or prevention.
Take, for example, one company I traded … a manufacturer of protective masks and medical apparel. This stock had a crazy spike in March, going from about $4 to $40.
Thing is … it’s happened before. During the SARS scare of 2003, it went from less than $1 to over $3. During the Ebola scare in 2014, shares jumped from about $3 to $12.
What nobody could have predicted? Just how crazy the stock spikes would be during COVID-19. It’s like the volume’s been turned up on everything.
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Stay-at-Home Plays
A ton of spikes haven’t been directly related to the virus but rather the indirect ripple effects of stay-at-home orders.
- More people were working from home. At-home video conferencing companies spiked.
- People were scared of food shortages. Canned food company stocks spiked.
- People couldn’t go to the gym. At-home fitness stocks spiked.
- People couldn’t go to restaurants. Food service stocks spiked.
These are the types of plays that are pretty obvious in retrospect … but most people aren’t smart enough to be prepared. I like to be prepared, and I teach my students to be prepared.
We’re scanning the markets daily — and when we see stocks like this spiking, we follow the plays. It’s a matter of reacting versus anticipating, and being ready to take action when opportunities come along.
The Hottest Hot Sector I’ve Ever Seen
Like I said, even in a downtrending market there’s usually a hot sector or two. But in my 20+ years of trading, I’ve never seen a hotter hot sector than this.
Why? Well, obviously uncertainty can create volatility. There’s been plenty of that. But there’s more to it.
So Many New Traders
Lately, a TON of new traders are hitting the scene. Everyone’s been stuck at home. Some people decided to waste their time playing video games. Others decided to learn something new, trying to generate some extra income. I’ve had a huge influx of new students … it’s been unlike anything I’ve ever seen.
This is a great thing because in the penny stock world, education matters. People who are ready to learn the rules before they start trading are far more likely to get ahead.
With penny stocks, there are a ton of traders who don’t know what they’re doing. So actually, all of these new traders who just want to get rich quick and make stupid trades actually creates even more opportunities for smart traders who have taken the time to learn how penny stocks really work.
Short Squeezes Galore
Another phenomenon creating mega-volatility? Short squeezes.
Short selling has always been a thing, but in recent months, there’s a seemingly limitless population of testosterone-pumped aggro short sellers. They think that their way or the highway, and they don’t even look at the past…
Aggressive short sellers create short squeezes. They saturate the playing field, and they can actually cause the price to go up when too many short sellers trying to exit their positions at once create spikes.
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Pandemic Trading: An Exercise in Adaptability
The stock market during the pandemic sure has been a wild ride … and it’s not over yet.
As the months have progressed, the market and the hottest trades have changed. However, the fact that there are trading opportunities has remained consistent.
- Past runners have run again…
- Continuing developments in and around the virus have spawned new offshoot sectors…
- And reopening has created its own slew of opportunities…
Overall, what I want you to take away is this — nothing lasts forever in the market. All you can do is educate yourself, be as prepared as possible, and be ready to adapt and react to the opportunities that show up.
