What should you do if a stock you are holding goes up 50% in one day? Yesterday night at 5:30 I found myself contemplating this happy question on ARTX (Aerotech, Corporation), which had gone up 50% on news of a large order from the U.S. Department of Defense. So, I did what I usually do when confronted with such questions — I used Equities Lab to get an answer.
How to ask the question? I chose the most naive query possible: "Find me all stocks that have gone up at least 40% in just one day", and then backtested it, rebalancing weekly on Mondays?
That doesn't look good! Maybe I have micro cap stocks (even smaller than ARTX's 80 million) mucking up the result. Or perhaps penny stocks are causing the problem… Either way, I realized I was going to have to investigate further — a possiblity at a 200% gain (.5 to 1.5 in 2010) did not make up for the loss of everything thereafter. And given that my rebalance period was only a week, such losses seemed to come promptly. So I put in rules to rule out closing price below 2 dollars, and market cap less than 40 million, and got ….
Decidedly not an improvement! It was 5:40pm now — if I didn't come to a decision soon, I would not be able to unload my ARTX even in the after hours market. But could crossing $5 dollars have made the difference? And what about before 2010? Lets see what I saw next….