HealthCare Triangle (NASDAQ: HCTI) stock is down 22% premarket. HCTI stock is falling, we'd insist, for no reason other than it rose too far yesterday. This isn't, we agree it isn't, the most substantive nor surprising analysis of all time but it does have the merit of being true. Small cap stocks that soar for no reason just do have this dreadful habit of then wilting. The good reason for the wilt being the unexplained soar before.
We did though say this about HealthCare Triangle yesterday: “HealthCare Triangle (NASDAQ: HCTI) stock is up 141% this morning. HCTI stock is moving on no news, just what looks like a speculative flurry. Now, of course, it is possible for us to be wrong on this. But we'd expect much of this price rise to fade away over the course of the trading day. Our analysis is that this is a frenzy more driven by the thin liquidity of the early morning premarket than anything else. This is not an uncommon happenstance in small cap pharma companies and we're happy enough to say that this is what it is. All over again.”
We stand by that. There was no real reason for the rise, just speculation, so there's no real reason for the fall again other than that excess of speculation yesterday.
HealthCare Triangle stock price from NASDAQ
As to the larger lesson it's simply one about such small cap and low liquidity stocks. Small changes in buying behaviour can radically change the prices. This can set off momentum traces - or if they're deliberately caused then we might think of them more as pump and dumps. Such speculative frenzies are most fun, of course they are, and to us as traders looking for a capital gain they're very tempting indeed.
The problem is that if there's no objective reason - other than market sentiment - for the stock price soaring then there's nothing to keep it up there after it has soared. As soon as sentiment turns - which it normally does and pretty quickly - then the price will come back down again. And given that we've no objective evidence that means we can't judge when that price has peaked.
Everyone does hope to get lucky and buy in on the rising part of the curve. But that's rare - it's the people who bought in before the rise who get to make the fat profits. Yes, there's money to be made in this sector. But the important thing to ensure is that it's you making money, not someone making money out of you.
And yes, there was indeed that announcement of the ransomware product. But that was just the trigger, the price still rose excessively and is now falling.
