ATM Programs in Penny Stocks: A Trader's Guide

1. Setup Definition and Market Context

An At-The-Market (ATM) offering allows a company to sell shares into the open market over time. This creates a slow, steady supply of shares, which can act as a headwind on the stock price. Unlike secondary offerings, there is no single announcement drop, making them trickier to trade.

2. Stock Selection Criteria

• Float: Any float size, but the impact is more pronounced on lower float stocks.
• Volume: The ATM is more effective when the company sells into high volume, so look for stocks with a catalyst.
• Price Action: The stock struggles to hold its gains and fades off of any spike in price.

3. Entry Rules (Short-biased)

• Timeframe: 15-minute and daily charts.
• Entry Signal: Short the stock when it fails to break through a key resistance level, especially on high volume. This is a sign the company is using the ATM to sell into strength.
• Confirmation: Look for a topping tail or shooting star candle on the daily chart.

4. Exit Rules

• Winning Scenario: Cover your short position at the next key support level.
• Losing Scenario: Stop out if the stock breaks through the resistance level with strong volume.

5. Profit Target Placement

• Target: The 20-day moving average is often a good profit target for ATM fades.

6. Stop Loss Placement

• Stop: Place your stop loss just above the resistance level you are shorting against.

7. Risk Control

• Patience: ATM fades can take days or weeks to play out. Be patient.

8. Money Management

• Smaller Position Size: Use a smaller position size than you would for a secondary offering short, as the setup is less certain.

9. Psychology

• Frustration: It can be frustrating to watch a stock slowly bleed out. Stick to your plan and don't get chopped up by the small bounces.

10. Common Mistakes and Red Flags

• Ignoring the News: The company may announce the termination of the ATM program, which would be a bullish catalyst.

11. Real-World Example

• Stock: CDE, has an active ATM program. The stock runs from $2 to $4 on a news catalyst.
• Entry: Short 500 shares at $3.90 as it fails to break through the $4 resistance level.
• Stop Loss: $4.10.
• Profit Target: Cover at the 20-day moving average, which is at $3.20.
• Profit: $350.