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A few days ago, I wrote about RWLK and whether or not the stock might experience further upside.

On day one of the move, the stock was up almost 100% and traded over 320M shares. No press release or catalyst caused this impressive move.

I laid out several different scenarios for the stock in the first article, and yesterday one of them materialized.

Although, it materialized differently than I suspected, which makes for an excellent teachable moment and case study!

But first, a quick reminder, What is RWLK?

ReWalk is a medical device company. The company, according to Yahoo, designs, develops and commercializes wearable robotic exoskeletons for individuals with mobility impairments or other medical conditions in Israel, the United States, Europe, the Asia-Pacific, Latin America, and Africa.

Market Cap: 93.22M

Float: 45.43M

Short Interest: 0.50%

The Teachable Moment

On day one, the stock gave precise levels of support and resistance, which would act as guides in the days to come.

As I mentioned in the previous article:

$1.50 is the opening price from yesterday and also represents the break of the downward trend. Below this price, anyone who bought the stock on the gap up will be underwater.

$1.95 – $2 is yesterday’s pre-market resistance, which later turned into critical intraday support. This is the most crucial level of support from yesterday.

$2.30 is a key level of intraday and after-hours resistance.

$2.60 is resistance from the close, and $2.68 is the high of the day.

And with those key levels in mind, I noted the following:

“As the stock advances, the bulls would not want to see the stock fail to hold above critical support of $1.95 – $2. A move below this level might signal a potential shift in momentum.

If the stock breaks below $2 and heads towards yesterday’s opening price, the bulls might quickly lose confidence in the long thesis.”

Now let’s take at the action from day two and day three:

On day two, the stock faded off and consolidated below the critical support of $2. As I mentioned above, this might have caused the bulls to lose confidence. This also might have caused the shorts’ confidence to grow, along with their positions.

Notably, on days two and three, the stock failed to get below the opening price from day 1. As I mentioned earlier, If the stock broke below that price, it would have signaled the end of this move. That never happened.

Now let’s take an even closer look at day three because this is where it gets interesting.

Immediately after the open, the stock pushed higher on volume and reclaimed $2. Remember, $2 is critical support, and the bulls do not want to see this level turn into resistance.

At this moment, those short the stock might have been thinking that the pop higher is an opportunity to short as it is just a dead cat bounce.

However, notice how the stock attempted to break back below $2 (highlighted yellow) but sharply reversed and broke higher.

Once the stock reclaimed critical support, those short the stock from the day before are now trapped.

The $2 reclaim and push higher is a textbook example of a short squeeze.

In the future, $2 will continue to be the most crucial level, acting as support. A move above yesterday’s high and then $2.60 could signal a breakout.

Author:
Jeff Williams

Jeff Williams is a full-time day trader with over 15 years experience. Thousands of entry-level and experienced traders alike – day-traders and swing-trade small cap stock traders – credit Jeff with guiding them to turning small accounts into big accounts.

Jeff’s "Small Account Challenge" shows people how to transform accounts from a few thousand dollars into $25k, $50k or even $100k.

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