Microcap nursing home operator Advocat Inc. (AVCA.OB) retraced from a fresh 52-week high back towards the bottom of the price channel it has formed over the past three months (connect recent highs and lows to see the channel):
What is driving these wild swings in Advocat stock? First, consider that the stock is up over 300% from this time last year. That means that a lot of investors are sitting on phenomenal gains, and may be inclined to lock in those gains on the first sign that the stock has stalled. Second, the increased volume we have seen over the past three months may reflect the influence of momentum traders, who inevitably add volatility to the stock. Third, the fundamental news has been good, but not great. The company delivered solid but not earth-shattering earnings. While it has received a commitment to refinance its debt load, many investors are disappointed by the company's failure to obtain a listing on a national exchange.
I'm currently out of the stock, but at the right entry point I'll jump back in. Although I have been fortunate to catch a few swings within the price channel, thats not the way to trade a microcap. Most of the time that will only ensure that you are in the stock as it is weakening and left behind as it really starts to trend.
DISCLOSURE: I have no position in AVCA.OB.