How (and Why) I’m Powering Through This Tiny Trade
As we watch the market action after a Fed comment boosted morning trading, let me show you how I am actively trading a lower-priced spec name.
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The market moved higher on Thursday morning mainly due to some comments by Fed Gov. Christopher Waller. He said that if incoming data over the next two weeks shows disinflation, he would support holding the funds rate at 3.50% to 3.75% at the Sept. 15 and 16 meeting.
His decision, however, will be heavily influenced by the August consumer price index report that is due Sept. 11. His message was that the Fed should give disinflation a chance and can wait one meeting, since a quarter-point hike now is not going to help bring CPI down to 2% by itself.
The market liked the comment and spiked, but now breadth is back to around even. Small caps have gone red while the Dow Jones industrial average is leading with a gain of 0.7%. Don’t forget we have big jobs news on Friday morning, and Waller just made the CPI report due next week extremely important.
Defensive Does Not Mean Inactive
I’m being cautious about the market right now due to concerns about inflation, interest rates, weak jobs, seasonality, and the midterm elections. But just because I’m holding high levels of cash in client accounts at HammerHead Financial and taking a more defensive posture, it doesn’t mean I’m not doing anything.
I made a couple of quick trades in Hewlett Packard Enterprise (HPE) to take advantage of the post-earnings volatility. I still think the name is a good value longer term and am holding a core position, but I’ll be adjusting my position size as opportunities arise. I’m not too surprised at a negative reaction to good earnings and revenues, and my positioning reflected that.
Adding to NeoVolta on the Pullback
Another name that I’ve been watching closely is low-priced NeoVolta (NEOV). I’ve discussed this little stock several times, most recently on Monday when it announced a supply deal valued around $1.09 billion with Korea’s SK On for battery cells produced at SK On’s U.S. plant.
I have been actively trading the stock and am now adding on the pullback following the news. A supply agreement that size from a major Korean cell manufacturer is validation that NeoVolta is a serious player rather than a small battery installer, and it came on top of an earlier letter of intent with Infinite Grid Capital for roughly $200 million of utility-scale deployments aimed at the AI infrastructure buildout.
The key here is that I expect more news flow regarding NeoVolta’s Georgia manufacturing facility. NeoVolta owns 80% of a joint venture building a plant with two gigawatt-hours of initial annual capacity, scalable to eight, with a production ramp targeted for the current quarter. The company said in June that commissioning was on track for the end of August. That announcement has not come yet, and when it does it is the kind of milestone that moves a stock this size.
Management will also be at the Jefferies clean energy conference Sept. 9 through 11 and the Lake Street conference Sept. 10, which is where small companies tend to release updates. The fiscal year ended June 30, so the full-year report should arrive toward the end of the month.
The company is run by Ardes Johnson, who came over from Tesla where he ran sales and marketing for the energy products division and launched the partner channel for PowerWall and PowerPack. He brought in a CFO in May with twenty years of experience scaling manufacturing businesses. With lower priced small-cap stocks, management quality of this sort is unusual.
The company filed a shelf registration on Aug. 10, and it has raised capital twice this year already, $10 million in January and $25 million in May. The last 10-Q says the Georgia plant requires up to $25 million in additional contributions through June 2027, and that the company will need significant future infusions of equity or debt to fund it. There is a good likelihood of some sort of offering into good news.
What This Trade Illustrates
I’m setting out this trade in some detail to provide an example of what I do in a poor market. I’m not rushing to accumulate stocks that are acting poorly. I’m looking for trading opportunities that are unrelated to the market or economic issues. This is not suitable trading for casual market players or those with a longer term approach. It is for folks that spend a great amount of time watching the market and making moves. It is high risk but high return.
At the time of publication, DePorre was long HPE, NEOV.
