The Danger"s of Shorting an OTCBB Stock
Last week, LEXG and PNGM saw a lot of action from short sellers.
The first, LEXG, was a short cover; for PNGM, it was just the beginning of a short.
"He who sells what isn't his'n, must buy it back or go to prison.
" - Uncle Dan'l Drew, Wall Street Speculator in the 19thCentury.
I find short sellers very interesting.
I can understand shorting a stock that trades big volumes at high prices, but to take a short position on a stock that trades on the OTCBB is a bit dangerous.
Let's see why.
LEXG had a very big IR campaign planned.
And since it focused on lithium, it was well timed with the rise in oil - the premise is that lithium will replace oil as a transportation fuel very soon due to some major manufacturers building vehicles that run on lithium ion batteries.
The campaign began, and it looked like it would be a success.
Direct mail pieces began hitting homes and extolling the virtues of LEXG and lithium.
The internet was abuzz with lithium and LEXG.
The stock quickly moved from just over a dollar to over three dollars before momentum started to slow.
This is when the short sellers assumed the program was almost over and shorted the stock.
What they didn't know was that a second round was already planned and ready to hit homes just two weeks later.
As the stock languished, the short sellers' appetites were justifiably whetted - and they shorted even more.
When the second round of direct mail pieces hit, and the second round of internet touting began, the stock began to move up.
Some shorts of course started to cover to lock in profits or limit losses.
Others thought it to be short lived and shorted some more.
To the untrained eye, it looked like the IR campaign alone was responsible for bringing in all the demand for the stock that eventually saw it rocket to twelve dollars per share.
Even more astounding, in something reminiscent of the internet bubble, any company that had anything to do with lithium (I've counted ten so far) saw incredible demand for their stock and started trading at new 52 week highs.
The real reason for the demand of course, is something entirely different: suffice it to say that the float turned over more than expected.
No doubt about it: the shorts got squeezed on LEXG.
PNGM on the other hand, had a campaign planned.
On the first day of the campaign, on a stock that had never had any resistance (a look at the graph shows nothing but upticks on small volumes), there was a wall put up at thirty one cents.
To the untrained eye, it looked like there were lots of sellers in the market.
The stock closed down on huge volume.
The next day, it closed up.
The day after that, it closed up again.
But on the second two days, volume was not nearly as large as on day one.
Could this be another short? The answer is both, yes and no.
It was a short, but a "fixed" one.
A short seller would have to be insane to short a thirty cent stock - unless he knew something, or could control something, so it wasn't just a short seller.
Since PNGM only put out good news during the week, the short seller did not know anything.
So it had to be a control thing.
It became very evident that the short seller was someone who had access to a huge position.
It could not have been a real seller, since the previous weeks offered plenty of opportunites with large volume days for a real seller to sell a position.
My sources indicate that a brokerage house that had a huge position did the unthinkable: they used their clients' positions against the clients.
The broker sold the stock, even though no client had asked them to sell it - thinking they'd cover it once the IR campaign was over, before the clients were even aware their stock was gone.
My sources also indicate that the clients have now asked for their stock to be moved, meaning the brokerage house will have to buy it back.
Could this be another short squeeze? Time will tell, but the PNGM story seems to be far from over since they do have some very promising looking claims in the most prolific zones in Nevada - where over 80% of all gold mined in the USA is located.
The first, LEXG, was a short cover; for PNGM, it was just the beginning of a short.
"He who sells what isn't his'n, must buy it back or go to prison.
" - Uncle Dan'l Drew, Wall Street Speculator in the 19thCentury.
I find short sellers very interesting.
I can understand shorting a stock that trades big volumes at high prices, but to take a short position on a stock that trades on the OTCBB is a bit dangerous.
Let's see why.
LEXG had a very big IR campaign planned.
And since it focused on lithium, it was well timed with the rise in oil - the premise is that lithium will replace oil as a transportation fuel very soon due to some major manufacturers building vehicles that run on lithium ion batteries.
The campaign began, and it looked like it would be a success.
Direct mail pieces began hitting homes and extolling the virtues of LEXG and lithium.
The internet was abuzz with lithium and LEXG.
The stock quickly moved from just over a dollar to over three dollars before momentum started to slow.
This is when the short sellers assumed the program was almost over and shorted the stock.
What they didn't know was that a second round was already planned and ready to hit homes just two weeks later.
As the stock languished, the short sellers' appetites were justifiably whetted - and they shorted even more.
When the second round of direct mail pieces hit, and the second round of internet touting began, the stock began to move up.
Some shorts of course started to cover to lock in profits or limit losses.
Others thought it to be short lived and shorted some more.
To the untrained eye, it looked like the IR campaign alone was responsible for bringing in all the demand for the stock that eventually saw it rocket to twelve dollars per share.
Even more astounding, in something reminiscent of the internet bubble, any company that had anything to do with lithium (I've counted ten so far) saw incredible demand for their stock and started trading at new 52 week highs.
The real reason for the demand of course, is something entirely different: suffice it to say that the float turned over more than expected.
No doubt about it: the shorts got squeezed on LEXG.
PNGM on the other hand, had a campaign planned.
On the first day of the campaign, on a stock that had never had any resistance (a look at the graph shows nothing but upticks on small volumes), there was a wall put up at thirty one cents.
To the untrained eye, it looked like there were lots of sellers in the market.
The stock closed down on huge volume.
The next day, it closed up.
The day after that, it closed up again.
But on the second two days, volume was not nearly as large as on day one.
Could this be another short? The answer is both, yes and no.
It was a short, but a "fixed" one.
A short seller would have to be insane to short a thirty cent stock - unless he knew something, or could control something, so it wasn't just a short seller.
Since PNGM only put out good news during the week, the short seller did not know anything.
So it had to be a control thing.
It became very evident that the short seller was someone who had access to a huge position.
It could not have been a real seller, since the previous weeks offered plenty of opportunites with large volume days for a real seller to sell a position.
My sources indicate that a brokerage house that had a huge position did the unthinkable: they used their clients' positions against the clients.
The broker sold the stock, even though no client had asked them to sell it - thinking they'd cover it once the IR campaign was over, before the clients were even aware their stock was gone.
My sources also indicate that the clients have now asked for their stock to be moved, meaning the brokerage house will have to buy it back.
Could this be another short squeeze? Time will tell, but the PNGM story seems to be far from over since they do have some very promising looking claims in the most prolific zones in Nevada - where over 80% of all gold mined in the USA is located.
