Sunday thoughts - Beware when a stock becomes a religion....

The world is evolving, or perhaps devolving....depending on your point of view.  

I'm finding more and more people insist on viewing things in absolute terms, as being right or wrong, black or white, good or bad.  It doesn't matter if its politics, religion, or even stocks.  Donald Trump or Hillary Clinton, a lot of people insist on seeing one as a saint and the other as the devil.  A particular faith or denomination is either on the side of God or its in league with Satan.  And with publicly traded companies the same dynamic plays out, stocks are either awesome or garbage for some people.

I write a lot about the lessons my late great father taught me from his days working on both Bay and Wall Streets, blending in my own experiences working in the financial services industry. Dad taught me things like: "Don't marry a stock, especially those that are purely speculative".  And "You'll never go broke taking profits".  

My Dad was a great teacher.  But so was my late great mother.

Back in my teenage years I was drawn into a particular faith group.  How?  Uhm, I think her name was Tanya.  It wasn't a total shift from the religious upbringing of my youth, but this was an evangelical bunch  and they knew for certain the path to salvation and eternal life, or so they claimed at least.

My Mother didn't discourage me from attending their worship services or their activities.  Her only advice was to maintain what she called a "healthy bias".  Mom was a smart woman.  If she had forbidden me from participating, or made a big deal of it....Who knows?  I might just be on a street corner somewhere testifying, or maybe on TV using my faith to heal the sick and afflicted.  

I came to hold the view that on some points they were right, others I didn't agree with....and a lot of it, I was in between and unsure.  In my experience that's a healthy view, and I find it takes strength to admit that you don't have all the answers.  Only idiots are convinced they know everything.  

Now to bring this back to stocks.

There are many social media participants who approach investments with the fervour of a religious zealot.  There are posters to various sites who certainly view Ziopharm this way.  That's what I found when I did my first Seeking Alpha blog post on Ziopharm in 2015 expressing the opinion that at $13+ it represented a speculative bubble:  A Speculative Bubble Poised To Collapse?  

When I published that I was roasted by the faithful in the comment section.  I quickly found out what Galileo must have felt like when he dared to publish his theory that the Earth rotated around the Sun, or Scopes for teaching Darwin's theory of evolution.  I was a heretic.  

Why did one opinion cause so much consternation?  

In some cases I think its merely nervous shareholders who lack confidence in their investment, feeling a need to defend their position from any and all perceived attacks.  But in other cases I think the reasons are more insidious, with professional industry players looking to stir up as much buying as possible so sellers can get the best possible prices for the maximum number of shares being dumped.

I've seen the same thing with ABRW lately, anyone who doesn't buy into the forward looking promise is attacked.  

And its not just pumpers who are desperate to convert the great unwashed, so called "bashers" are no better. They're often desperate to convince others that they are stock market experts who never make a mistake when they tell others to dump a stock.

There's one joker on Twitter who plays both sides, alternately pumping with abandon and then bashing like crazy.  Joe Natural with the handle @ChinaStockPro was trashing RLYP repeatedly, posting negative comments with a youtube video of  a tree crashing to the ground: "TIMBERRRRR"!!!

 

JoeNatural‏@ChinaStockPro

$RLYP - oh my, only one word to describe investor faith in this management team's ability to execute

12:51 PM - 27 May 2016

0 retweets0 likes

How did RLYP do?  It's now trading at almost $32 after a buyout deal with Galenica for $1.2 billion in cash.  Back on May 27th it closed at less than $20 when Joe posted his bashing message. Obviously a massively bad call by Mr. Natural, unless of course he was playing that video in reverse.

Now this same false prophet and self proclaimed stock market expert is applying the same energy he used to bash RLYP and channelling it into pumping ABRW. We shall see how that works out.

Bottom line?  Be very wary of those who tell you they're never wrong.  If someone tells you they have the keys to the kingdom and you buy into their hype you might just get to heaven only to find that someone changed the locks.

Calling all contrarians - Galena Biopharma worth a look

Contrarian Investing

In terms of the broader overall markets there is a sure fire method if you're looking to lose money. Simply stated all you have to do is read the news and act accordingly.  When the news is bad take your money out and wait until things turn around to put your money back in.  Sell low and buy back higher in other words.

Over the past few years there has been no shortage of events that have sent shivers down the spine of the equity markets.  There's been the Greek bailout, fears over the US defaulting on debt repayments and a government shut down, and of course the very recent vote by Britain to exit the EU.  

Fears over these news stories have sent markets tumbling, but they've always rebounded.  

Contrarian investors of course do the opposite.  When others are taking their money out of the markets based on news driven fear, uncertainty and doubt, (FUD) the contrarian runs against the herd and buys in.

There's a big difference however between the broader markets and individual stocks.  While the overall markets have always overcome periods of fear based selling, some companies have not. They say a rising tide lifts all boats, however when bad news hits and the water drops, some companies sink right to the bottom and become ship wrecks.  

Its the old risk reward dynamic.  Employing a contrarian investment philosophy with vehicles like Mutual Funds and ETFs is much safer than using the same strategy with individual companies. While you can be confident that the overall market will recover from bad news, there are always the Enrons, the WorldComs and the Nortels that fade to black. 

But if you get it right with an individual company?  The rewards will blow away anything you'll achieve in an ETF or Mutt fund.  Apple is the most obvious example given its near extinction back in the 90s, but there are plenty of others like GM and Starbucks.

Galena Biopharma Inc.

So what about Galena?  2016 has certainly been a roller coaster year for this company as reflected in the trading of its shares (Nasdaq GALE).

After closing out 2015 trading in and around $1.50 the share price was cut in half early in 2016 as the the company announced that it was going to zoom its focus in on its cancer immunotherapy pipeline. That drop however started reversing in February and by June shares had climbed over $2 per.

Then the bad news hit.  The Independent Data Monitoring Committee (IDMC) conducting an analysis of Galena's Phase III clinical trial for NeuVax™ recommended that the trial be stopped due to futility.   

I'm not going to go into detail about the PRESENT clinical trial because I don't have the requisite background and there's plenty of information out there already providing a more in depth look. All I will add is that it appears that the drug arm of the event based trial did not significantly outperform the placebo arm.  One aspect that is interesting however is the wording used by the IDMC which is disclosed in the company's 8k of  June 27th 2016:

At this time the DMC recommends that the study be stopped for futility unless it is determined that there has been a systematic reversal in the study drug treatments in the two arms, in which case the IDMC should reevaluate the clinical evidence. 

The IDMC recommends that this be investigated as quickly as possible and, in the meantime, that this information be disclosed only to any individual(s) with a need to know about the procedures used to clarify the current situation. Finally, the DMC requests that Galena Biopharma inform the IDMC members of the outcome of this investigation and any decision with respect to discontinuation of the clinical trial as soon as possible. 

I don't want to read too much into the verbiage used, but it appears to me there is some "wiggle room" and that perhaps PRESENT could be re-started.  However I consider that to be a faint hope and something that shareholders might cling onto even though it appears to me as likely unrealistic.

Sometimes companies do bounce back from failure

Besides, there are other ways a company can recover from a so called "black swan" event.  Look at Ziopharm, a company some suggest I love to hate.  

Back in 2013 Ziopharm had a Phase III trial failure with palifosfamide which sent shares of ZIOP crashing from up around $6 down to less than $2.   A short two years later Ziopharm caught fire again and climbed to almost $15 in 2015 as investor excitement about the CAR T space sent shares bubbling with Ziopharm attaining a market cap in excess of $1.5 billion USD.

Those that bought ZIOP in 2013 had the chance to realize gains of 500% or more if they played the contrarian game and bought the bad news of Ziopharm's trial failure.  Perhaps those buying Galena around 40 to 50 cents currently will have a chance at similar gains in another year or two. 

Was this a dead cat bounce?

All my regular readers (both of them) know that I keep a close eye on short interest.  I don't view bears as an enemy however, but rather as a potential canary in the coal mine...so to speak.  If short interest is too high I fear the hedgers might know something I don't.

Leading up to this trial stoppage short interest was significant at over 25.6 million shares up to June 30th 2016.  The most recent update current to July 15th shows the number down to a little more than 17.6 million, a substantial drop.  Obviously the bad news gave shorts a chance to realize some healthy profits and no doubt some decided to turn paper gains into capital gains.  

When short sellers cover off on a stock that's just experienced a big drop it can lead to what's often referred to as a 'dead cat bounce'.  The bears buy back the shares they borrowed, but they're not buying them because they're bullish, but rather to cash in on winning short investment strategy. While a bull invests in hopes of a company's success, a bear is "investing" in hopes of failure. 

Does Galena have the resources to survive?

Science is expensive, tackling diseases like cancer can't be done cheaply.  The people employed in this overall space don't work for free, far from it.  Sainted figures like Albert Schweitzer and Mother Theresa never worked for public companies

Motley Fool writer Brian Feroldi put out an article detailing the company's financial state on the very day Galena stopped its trial. Linked below:

Why Galena Biopharma Inc. Is Being Obliterated Today

The headline is absolutely brutal, and if it wasn't designed to inflict maximum pain to the collective psyche of shareholders, I have little doubt that was the effect.  The article chronicles the current situation as of the date it was written and concludes by saying that its hard to see how the company could ever bounce back.  

The article is well written and for the most part factually based, but it also constitutes what I consider to be a hatchet piece, and I express that opinion as someone who currently has no position long or short.   And the article is already out of date with conclusions that are questionable in light of more recent developments.  Mr. Feroldi was completely wrong on one point, saying: 

"With its share price down so much today, the equity markets are no longer a viable source of funds".

The company just raised approximately $11.7 million through a registered direct offering with Raymond James acting as the exclusive placement agent. Combined with existing cash and the $23 million raised via a recent debt offering it looks to me like Galena is going to have no trouble keeping "the doors open" in the near to medium term.  

Bottom Line Opinion

I'm not a bull or a bear on Galena at this juncture, but I will continue watching.  Almost 80 million shares changed hands on June 29th, the day the bad news hit.  Some of that was undoubtedly short covering, but there was also buying going on.  Enough that the bounce off that day's low under 30 cents was more than just a dead cat in my opinion.  

I will be watching to see if bears continue covering off their winning bets, doing the smart thing and buying back low after selling high.  

Disclosure

I currently have no position in GALE either long or short, in the future however I may take out a long position.  This is strictly an opinion piece and I have received no compensation whatsoever for the writing of this blog entry.  For further disclosure statements please see the very bottom of this site.  

HMPR - Golden Cross

I'm not one to draw my hand into a fist and start pounding the table about any stock, its not my style. But if I was forced to pick one stock to pump, then HMPR would be the one I would choose.

Are there other stocks out there that will make bigger gains in the near term?  Oh yeah, much bigger...but most (and possibly all) will be in money losing companies playing the Promotion & Hype game to lure investors in on rosy projections about the future.  

If you've been watching the markets for any length of time you've seen it happen, and maybe you've been caught in one or more yourself. They soar, investors load up as they climb, convinced they're gonna be rich....then BAM, the bag closes and the PPS collapses.  Sometimes it takes a few months, sometimes a few weeks, and still other times its just a matter of days.  

HMPR doesn't qualify as that type of investment for me, because they aren't paying cheeseball promoters to interview the CEO, nor are they being hyped by email blasting chop shops and twitter morons trying to pass themselves off as stock experts.

Hampton Roads Bankshares is, (as the name implies) a bank, and it is profitable.  

If you like a company that puts out a news release for any and every little event....then move along, you won't like HMPR.  That's not to say there isn't news, just not the usual fluff you see so often with speculative money losing companies.  Hampton Roads Bankshares has a proposed merger with Xenith Bankshares that is expected to receive shareholder approval on July 29th. 

http://finance.yahoo.com/news/hampton-roads-bankshares-inc-xenith-212500712.html 

Perhaps in anticipation of that news the stock has gone on a bit of a run.  I've written about Hampton before, back on May 11th when the PPS was $1.81:

http://www.avoidthebag.com/2016/05/hampton-roads-bankshares-hmpr-great.html  

It closed Wednesday July 27th 2016 at $1.98 and now the chart shows the 50 day moving average poised to cross over the 200.  Followers of Technical Analysis (or TA for short) refer to this as a "Golden Cross", when a faster moving average crosses over a slower one.  And for devotees of TA the "goldenest" of golden crosses is the 50 over 200.

Full disclosure to my devoted blog dogs, (yes all three of you) I am a shareholder so my opinions are not without bias.  And while I believe HMPR is a solid "buy and hold" long term investment....I could be wrong.  Do your own DD and don't hesitate to consult with a licensed professional.  

HMPR hardly gets any chatter on places like twitter and stocktwits, this is not some speculative money losing company being hyped and promoted like its the greatest investment vehicle of all time and a sure fire winner.  If you want a stock like that sign up with some email blasting chop shop.  

Why Donald Trump will be the next American President....

Trump versus Clinton, Hillary versus the Donald.  The insider versus the outsider, the chosen one against the bombastic one.  Man oh man, this is gonna be a fun election for my American friends.

And Donald J. Trump is going to win.  

Okay, I hear what all my regular readers are saying, all three of them.  This is a blog about stocks, about the financial markets.  This isn't a political soapbox.  Why am I going on about the U.S. election?  

Well I'll tell ya.  

There's a reason Donald will win, and its the same reason why money losing companies are able to attract investors while printing off shares.  Mr. Trump will be moving into the White House for the very same reasons that people put hard earned money into companies whose executives earn million dollar salaries and bonuses but never deliver long term shareholder value, sometimes for decades.

Why?  Because people are stupid.  

Please note, I said "People" not "Americans".  The United States does not have a monopoly on stupidity.  Canadians like myself need look no further than our largest city, the cosmopolitan and liberal bastion called Toronto, which elected crackhead Rob Ford as mayor.  

Its a simple formula folks, you see it in politics and the public markets all the time.  Just tell people what they want to hear and make sure you have a really simple solution to any problem, no matter how complex.  All you have to do is sound strong and confident, even when you're talking outta your ass.

How it works in the public markets

You have some little beverage company that claims its going to compete with the Cokes, the Pepsi Colas the Nestles of the market.  How?  Easy, by merging with other little companies to bring about economies of scale and synergies, going after a small little niche segment.  Just think about it, some little Pink Sheet traded OTC company will go from pennies to $10 so buy all you can while the PPS has only climbed to a buck or two and you'll be rich.  And don't even think about who is selling, that doesn't matter.

In politics

How can the U.S. deal with illegal immigrants coming in from Mexico?  Simple, just build a wall. Easy peasy lemon squeezey, just say it after me.  Build a wall, build a wall....keep saying it until you understand that it can't fail.  If you're still not convinced pump your hand and chant, and say it louder. BUILD A WALL, BUILD A WALL!!!  

Confidence is key folks.  If you start trying to sound intelligent and nuanced, you've already lost.  

Now, with public companies we all know what happens.  Reality sets in and the PPS crashes leaving investors wondering:  "What the hell just happened"?  But that's okay for the CEO and other insiders because the money has been raised.  The salary and bonus checks will continue thanks to the stupidity of the investing public.  And some are so stupid they'll refuse to admit they even made a mistake. They'll still love the CEO and will blame dark market forces like hedge funds and short sellers. They'll scream at message board "bashers" who were too dumb to buy a ticket to the promised land.

In politics its much the same.  

Once Trump gets elected and the wall still isn't built or even started, it won't be his fault....it won't be because it was a really dumb idea.  It will be because of his opponents who didn't see Donald's genius. When protectionism isolates the United States from the rest of the world and men and women are out of work, it won't be because voters put the wrong guy in the White House, it'll be because of American enemies.  

Oh what might have been

It could have been a different election though.  The Democrats could have gone with a better candidate.  Instead they gift wrapped the nomination and handed it to Hillary Clinton. The former first lady, senator and secretary of state with the private server and bogus sniper fire story.  The contradictory progressive who also says she's a moderate, once against same sex marriage and now in favor of it.  Whiskey Tango Foxtrot???

Bernie Sanders would have offered a clear choice, old but dynamic Bernie knows how to do more than just talk the talk, he walks the walk.  He talks racial justice and marched with MLK.  Hillary talks about the glass ceiling and women's issues but laughs about getting a rapist off with time served. Bernie would have had a chance, but Hillary will inspire too many voters to stay home on election day.  Some voters will hold their noses too long and won't be able to leave the house in November.

In any case it will make for great theater over the coming months.  And for those who are dead set against a Trump presidency, take solace.  This blog made one other recent political prediction, that Britains would vote to stay in the EU, and I got that one wrong.  Maybe I'll be wrong again.

Juno Therapeutics being sued - Is Ziopharm next?

The shine has definitely come off the CAR-T space.  

If you're reading this miserable little blog then I assume you're already familiar with Chimeric Antigen Receptors and how they can allow T cells to recognize a specific protein (or antigen) on a tumor cell. And with the issue of toxicity and how the companies in this space are attempting to overcome it. 

This new and exciting field caught fire in 2014 and 2015 as investors stormed into companies investigating potential treatments for various forms of cancer using this new Immunotherapy.

Kite Pharma (Nasdaq KITE) started trading in June of 2014 around $25 per share, and it didn't take long for it to take off, getting up around $90 by January 2015 and again in November of the same year.  KITE is currently trading around $50 per share with a market cap of around $2.5 Billion.

At $50.18 (the most recent close) KITE is trading 44.1% below its 52 week high of $89.84

Juno Therapeutics (Nasdaq JUNO) started trading in December of 2014 in the $35 to $40 range and it too soared, getting up near $70 by June of 2015.  JUNO is currently trading under $30 with a market cap of a little over $3 billion.

At $28.83 (the most recent close) JUNO is trading 50.1% below its 52 week high of $57.82

Ziopharm jumped into the CAR T space in January of 2015 after reaching an agreement with the MD Anderson Cancer Center in tandem with partner company Intrexon that included paying Anderson $100 million in shares of the two companies ($50 million each) plus an additional $15 million in shares (also split evenly) to induce Anderson to agree to the deal in time for a JP Morgan healthcare investor conference.

Shares of Ziopharm did as might be expected.  After trading under $3 as recently as October of 2014, by March of 2015 they were trading over $14, and ZIOP reached those levels again as recently as November of last year.  ZIOP is currently trading under $5 per share with a market cap of about $600 million.  

At $4.60 (the most recent close) ZIOP is trading 69.1% below its 52 week high of $14.93

Juno Therapeutics has recently become the target of law suits centred around allegations of violations of Federal Security Laws regarding the reporting of a Phase II trial patient death, and that insiders engaged in the selling of shares before the news was released on July 7th 2016.  Before news of the patient death JUNO had been trading around $40, after the news came out the PPS dropped down to its current price around $28.  

Here is a link with details of one lawsuit:

https://finance.yahoo.com/news/juno-therapeutics-inc-ceo-sued-001500402.html

Ziopharm also recently reported a patient death in its Phase I trial for Ad-RTS-hIL-12.  And as with JUNO the news sent ZIOP's shares sharply lower.  Trading in and around $6 in the days prior to the news, shares dropped under $5 on July 15th and closed today's trading at $4.60  There have also been stories written saying Ziopharm was in discussions in regards to a possible $50 million equity offering that has since been withdrawn in the wake of the trial news.  

THE STREET NEWS STORY - Brain Tumor Patient Dies After Ziopharm Gene Therapy Injection

This news has also attracted various law firms, with PRs announcing that Ziopharm is being investigated for possible breaches of Federal Security laws.  

Here are some links from law firms seeking to contact Ziopharm shareholders in regards to their investigations:

https://finance.yahoo.com/news/shareholder-alert-khang-khang-llp-152500517.html

https://finance.yahoo.com/news/shareholder-alert-bronstein-gewirtz-grossman-141600177.html

https://finance.yahoo.com/news/important-investor-notice-lundin-law-163600987.html

https://finance.yahoo.com/news/shareholder-alert-levi-korsinsky-llp-141100642.html

https://finance.yahoo.com/news/important-investor-alert-goldberg-law-001600961.html

https://finance.yahoo.com/news/federman-sherwood-investigates-ziopharm-oncology-202100911.html

https://finance.yahoo.com/news/shareholder-alert-pomerantz-law-firm-150300712.html

Does all this activity mean Ziopharm, like Juno, will be sued?  I don't know, I'm not a lawyer.  The extent of my legal expertise comes largely from reading about a dozen John Grishman novels and watching old episodes of Law & Order.

I do know that this is one of the many risk factors outlined in Ziopharm's SEC Filings.  From their most recent 10Q you will find this:  

The testing and marketing of medical products entail an inherent risk of product liability. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products, if approved. Even a successful defense would require significant financial and management resources. Regardless of the merit or eventual outcome, liability claims may result in:

•

Decreased demand for our product candidates;

•

Injury to our reputation;

•

Withdrawal of clinical trial participants;

•

Withdrawal of prior governmental approvals;

•

Costs of related litigation;

•

Substantial monetary awards to patients;

•

Product recalls;

•

Loss of revenue; and

•

The inability to commercialize our product candidates.

We currently carry clinical trial insurance and product liability insurance. However, an inability to renew our policies or to obtain sufficient insurance at an acceptable cost could prevent or inhibit the commercialization of pharmaceutical products that we develop, alone or with collaborators.

There is of course insurance for possible securities violations, which is included in a Schedule 14a filing:  

http://ir.ziopharm.com/secfiling.cfm?filingid=1193125-16-563936&cik=1107421

We maintain director and officer insurance providing for indemnification of our directors and officers for certain liabilities, including certain liabilities under the Securities Act. We also maintain a general liability insurance policy that covers certain liabilities of directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers. We have also entered into indemnification agreements with each of our directors and named executive officers.

I don't know what "certain" liabilities means.  Obviously it means some, but all.  So whether they are insured or not...the devil, as is often said, is in the details.

Too often inexperienced investors rush into a stock on hype, excitement and a climbing share price.

It pays to be fully abreast of all the risk factors.  

Musk's "Master Plan" - The Green Energy Paradigm

Tesla CEO Elon Musk has just come out with his updated "Master Plan".  If you're reading this practically invisible and pathetic little blog then you already know the details.  

Its a new world.  We're all going to be driving electric cars, have solar panels on our roofs and battery storage systems in our homes.  Okay, but is it realistic?  Are we going to do away with fossil fuels and be living on a cleaner planet in the decades to come?  

There's no way to know for sure, the master plan doesn't include the building of a time machine. With that being said, I like the chances.

Someone born in the year 1900 would have had two major forms of transportation, by foot or by horse.  For those fortunate enough to have the means to travel the world there were steam powered ships and coal fired trains.  Cars and planes were still dreams in the planning stages, but they were dreams that came true. Within fifty years cars were everywhere, suburbs sprang up and ribbons of pavement crisscrossed the landscape.  Intercontinental travellers were spared the long journeys across oceans as commercial air travel started flying people all over the world.

The new paradigm?  Clean energy stored in Lithium Ion batteries running our homes, our cars and pretty much everything else.  

When cars first came out some thought they were a fad, that the old reliable horse and buggy would never be replaced.  The same thing happened when cell phones hit the market, some people said that there would always be a need for a hard wired phone in people's homes.  

The world changes, and when the change is big its sometimes called a paradigm shift...that's what Mr. Musk is suggesting.  I think he's right.  

Will companies like Tesla combined with Solar City (assuming the merger goes through) lead the charge?  Maybe, maybe not.  There were a lot of car makers that were big at the start, and many of them were absorbed or disappeared.  Does anyone remember the Packard?  Same thing with cell phones, companies like Nokia and Motorola were the early leaders, long before Apple and Samsung.

Investors hoping to cash in on the changing landscape have a multitude of choices.  Aside from the aforementioned Telsa (TSLA) and Solar City (SCTY) there are lithium miners, manufacturers of battery storage systems and their associated components, solar panels and wind turbines....and much more.

I've place a few bets, these aren't recommendations, there are plenty of publicly traded companies to choose from.  I've put money into Lithium Mining with Lithium Americas (LAC on the Canadian TSX) and into battery storage and the inverters needed to integrate them into power grids with Eguana Tech (EGT on the Canadian TSX Venture) and a company that works in the solar panel space called Aurora Solar Tech (ACU also on the TSX Venture).  For those seeking less risk the Global X Lithium ETF might be an option.

In my opinion the Green Energy sector is just starting to grab investor attention, and I don't think the party will be ending any time soon.  And with Mr. Musk's ability to grab the spotlight, this updated master plan will be getting lots of play and chatter over the coming news cycle. 

Elite Pharmaceuticals - Pride comes before a fall....

I haven't been shy about sharing my successes here at Avoid The Bag, so its only fair if I also share my failures, and Elite Pharmaceuticals was a big failure.  

I did a blog posting about Elite last month on June 19th, basically saying that while I didn't view it as a good long term investment, that I could see it providing potential for a profitable short term trade.   And it might have, had I been willing to sell for 38 cents when it got to that level briefly, instead of at 21 cents.  

Elite Pharmaceuticals - Is the herd about to storm in? (ELTP)

Greed kills.  

Given my opinion on Hype, News and Promotion...what I call the "Unholy Trinity" of the markets, I should have avoided it all together.  All three were right there, and I knew they were there. My rationale, explained in that original blog posting, was simple.  I figured there was a good chance that a storm of buying would come in to push the PPS higher which would allow me to sell for a profit. And it did, but I got greedy and then it was hit with bad news (an FDA Complete Response Letter) and tanked.

I lost a few hundred dollars, but I wasn't going to hold on, or average down, not given my overall opinion of the company.    Fifteen or twenty years ago that's likely what I would have done, but no more.

Often you'll see disclaimers used by outfits touting penny stocks that say, "investors should be prepared to lose some or all of their investment".  Those disclaimers are there for a reason.   I lost some, but not all of my "investment", as it says in the subject line, pride comes before a fall.  

With over 700 million shares issued and outstanding I don't doubt that ELTP has attracted some short selling, and the recent bounce after the FDA news, in my opinion that was likely the result of some bears covering off and taking profits.  I also think they could reload and short it down even more.

Ninety nine percent of the time I view OTC penny stocks as only being suitable as trading vehicles, not as long term "buy and hold" investments.  I'm not saying I won't perhaps try again to catch some momentum on a hyped up penny, but if I do then I will endeavour to sell too soon as is my usual habit.

For the larger part though I will spend my energies trying to find the ones that are quiet with thin volumes.  They're harder to find of course, because they're not screaming for investor attention, but I like the ones that play hard to get.  

The lure of green energy - Aurora Solar Tech (ACU.V)

For anyone who is new to this blog expecting to see a bullish write up on ACU.V with lots of fundamental information and projections of monster growth potential and all that other stuff you typically see on stock promotional sites.....you're probably going to be disappointed.

That's not my style.

Stocks are risky, and the risks with penny stocks are even greater.  So are the rewards of course, but you have to be careful.  Typically penny stocks get promoted and pumped after they've already made big gains, when volumes are spiking and there's lots of news out to get the retail herd excited and buying. Social media sites and message boards become filled with pumpers

If that's what you're looking for, then you should probably move on because ACU.V doesn't qualify. Volumes are thin, on the Canadian TSX Venture exchange average volume for the past 3 months is 73,782.  For a stock trading in and around the 15 cent mark that's only about $11,000.00 changing hands on an average day.

Those who've been reading this pathetic and nearly invisible little blog, or if you followed me at other sites like SeekingAlpha (Joe_Retail) StockTwits (growacet) Stockhouse (ledrog)....this should all be very familiar.

My view on stocks in general, and with penny stocks in particular....is that if you're hoping to make big gains, then you have to get in BEFORE the herd shows up, BEFORE social media sites and message boards light up with pumpers screaming BUY BUY BUY!!!  If a SeekingAlpha contributor with thousands of followers starts talking about a penny stock as a "Great Investment", or touting a price target that would translate into a 500% gain...Then you're likely going to find a stock that's already jumped 500% or more with a lot of the upside potential already realized in my opinion.

As far as fundamentals go, my opinion (hardly a unique view) is that they are already "baked in" to the PPS.  There are three fundamental realities I DO NOT WANT to see.  They are what I consider to be the Unholy Trinity, they are: Promotion, News and Hype.

• Promotion is used to get investors watching a stock, putting it on a watch list
• News comes out and because of Promo gets read by the retail herd
• Hype hits the picture when the PPS starts moving, with the sheep convinced the prospects must be good because the share price is climbing

Regular readers already know that there are two sides to a trade, a buyer and a seller.  If the herd is being whipped into a buying frenzy, then there have to be others willing to part with their shares at the higher prices.  That's the market in a nutshell, and its the reason some players are able to buy low and sell high while the retail players often end up on the wrong side of the trade, buying high instead of selling high.

Do I think this will happen with Aurora Solar?  I don't know to be honest, but I do think its possible. If it doesn't I still think ACU.V is a better risk than buying into a penny stock that's already gone from 10 or 20 cents to $1 or $2 on lots of the aforementioned Promo/News/Hype.

Why do I think its possible?   The first reason is right there in the subject line, the lure of green energy.  This sector is heating up, and I don't see it calming down anytime soon.  Stories of global warming and the need for Green Technology and Energy are all the rage.  Tesla and Lithium batteries have caught the attention of investors, 

Interest in Lithium stocks spiked around 2010 before cooling off, now many Jr Lithium miners have seen their share prices explode over the past year.  Could the same thing happen with Solar?  No way to know for sure, but I do see the potential.  I've started getting emails touting Solar energy plays as a new "Golden Oil".  

And who knows, maybe Aurora Solar with execute on their business plan and become a major player in this sector.  They're actually not a maker of solar panels, instead they produce measurement and control solutions to help manufacturers improve yield, lower costs and achieve higher margins.

They recently announced (May of this year) an MOU with an unnamed "major solar panel manufacturer".  When it comes to news I'm something of a cynic, and a MOU is not a signed contract. But I doubt this news was read by many investors given the lack of promotion currently going on.

A big thing to look for with penny stocks in my opinion is financial strength, or weakness as the case may be.  With a 15 cent penny stock I'm not expecting profits or a robust balance sheet obviously, but I do want to know that a company has sufficient cash on hand to fund operations into the foreseeable future.  Aurora recently released news about a Private Placement which brings in about $775,000.00 which satisfies that criteria for me.

I also want to know how many shares have been shorted.  If there are bears placing big bets on the short side, that for me is a definite warning sign.  Shorting is incredibly risky, and with penny stocks the risks are even bigger.  With ACU the short interest might as well be zero, its only 2,000 as of June 30th 2016 or just .01% of the 33.2 million issued shares.

Finally there is the chart.  Frankly and unapologeticly I love it.  That doesn't mean its a slam dunk sure thing.  Sure things do no exist in the stock market, anyone who says otherwise about any stock is an obvious pumper.  But in the ACU.V I see a lot to like.

The stock has been trading in the 14-16 cent CDN range since the start of June, and back as early as May if you discount one short lived spike up to .20 cents.  In other words its trading close to its historic lows and I like to buy low, not high.

I include 3 moving averages, the 20 (near term) 50 (mid term) and 200 (long term).  At 16 cents the PPS would be above both the 20 and 50 dmas.  MACD (Moving Average Convergence Divergence) is just a hair below the 0 line.  I would see a break above that zero mark as a bullish technical signal. And stochastics, the fast line (black) has turned bullishly upwards and has crossed over the slow line (red) from an oversold position at the 20 line.

Finally OBV which stands for On Balance Volume.  OBV counts a day's volume as positive (+) when the PPS climbs and negative (-) when the PPS falls.  The OBV chart gives an indication of accumulation from April/May forward.  Given the lack of Promo/News/Hype I consider it possible that those who have been buying, that they might be what I like to call the "smart money crowd".

That's it folks.  I've taken out a position in ACU.V so my opinions are obviously biased.  If you want to look at the US side the symbol is AACTF with Aurora trading OTC Foreign.

To sum up my reasons for being bullish and why I view Aurora as having a good risk reward profile:

• Thinly traded and near its all time lows
• Only 33.2 shares issued as per stockwatch up to June 30th 2016
• No discernible Promotion or Hype and very little News
• A chart suggesting the possibility of accumulation
• In a hot sector (Green Energy) 

Good luck, and remember...if ACU or any stock makes gains for you...nobody ever went broke taking profits.  

Harsh truth or a tasty lie - Which would you prefer?

Given a choice between lies and the truth, almost everyone will say they want the truth. Reality is quite different however.  To quote Jack Nicholson in the movie ''A Few Good Men'' most people can't handle the truth.  Honesty, they say, is the best policy....but all too often lying is more lucrative.  

Years ago I worked with an African gentleman from the Congo, (back then it was stilled called Zaire, yes I am old) who related to me an old African parable that I will share with you now.

Two brothers, Truth and Lies, had been walking for many days when they came upon a small village. Truth said to his brother:  ''We both know people prefer the truth to lies so let me do the talking''. 

They come upon a woman tending a garden outside of a hut and Truth speaks to her saying:  ''My brother and I have traveled many days without food or rest.  Could we stay here a while and have something to eat and to rest up before we continue our journey''?  

The woman says she can't make a decision, that she'll have to wait for her husband to come home from hunting.  When the husband returns the wife tells him that if he lets these two strangers stay that she will leave him:  ''I  have enough work to do cooking and cleaning for you, I won't do it for these strangers as well".   The husband apologizes to Truth and Lies, but says if his wife leaves him that he'll have nobody to look after him.

They travel on and the next day they come to another village where a big feast is taking place.  Truth is horrified to see that the elderly in this village are hardly being given anything to eat, they are left to pick over the scraps and bones of what is thrown away.  Truth admonishes the villagers for their behavior, saying that the old villagers should be honored and given first choice of the bounty.  The villagers drive Truth and his brothers out of their village.

When they come upon a third village the following day Lies says to his brother:  ''You have done the talking twice now, and we still haven't had rest or food.  Now I will speak for us''!!!

When they get to the third village they learn that the chief is in mourning over the death of his wife. Lies tells the villagers:  ''I am a great shaman, I can bring your chief's wife back to life''.  Lies and his brother Truth are quickly brought before the chief who exhorts Lies to perform his magic and restore the life of his wife.  ''This is a difficult task'', Lies tells the chief, ''It will take all my power and energy and my brother and I are weary and hungry for we have traveled many days now without food or rest''.

The chief sets them up in a comfortable hut and provides them with all the food they can eat.  The following morning the chief sends for Lies and asks him to perform his magic.  Lies tells the chief that he is still too tired and that he will need one more day of rest and nourishment.

The next day Lies asks to be taken to the hut where the chief's wife is lying in state.  He has everyone leave and then starts speaking in strange unknown words, chanting and singing. Finally Lies lets out a loud cry and the chief comes running in, expecting to see that his dead wife has been brought back to life.  

Lies explains to him that as he was performing his magic that the ghost of the chief's father appeared before him.  Recognizing the magic and skill that Lies possessed, the spirit of the chief's fatehr asked Lies to restore his life instead of the chief's wife, saying he would give Lies and his brother one quarter of the village to rule over as a reward.  The chief is mortified, if his father comes back to life then he would no longer be chief and would lose his wealth and power.  He offers Lies the same 25% of the village to restore his dead wife's life instead.

Lies begins as before and again lets out a loud cry.  This time he explains that the chief's grandfather had come to him from the spirit world asking that his life be restored instead, offering fully half of the village in return.  The chief sees where things are going and tells Lies that he can have half the village to rule over with his brother in return for stopping all efforts to restore his wife's life.

The moral is quite obvious.  Most people will take a lie over the truth any day of the week, and lying is often far more profitable.  

Spotting the pumps easier than going long

This blog is not even three months old, and already I have managed to identify some stocks that, in my opinion, were inflated and due to come down.  Taking the PPS from my first write up on the following companies, here is how my bearish calls have performed as of this past Friday's close.

• May 8th  RYU.V   Down -18.9%
• May 5th  ZIOP     Down -27.2%
• May 17th KTOV   Down -54.9%
• June 12th ABRW  Up    +04.0%

My scorecard on bearish calls isn't perfect, but if ABRW does what I expect in the coming weeks and months, then I'll have to give myself an A+.  

As much as I'd like to pat myself on the back for my genius skills at sniffing out inflated stocks, it really wasn't that hard.  The way I see it this was all "low hanging fruit" so to speak.  Three out of those four companies, ZIOP, KTOV and ABRW were all hyped and promoted by an email blasting promotional outfit called StockReversals.  

I followed StockReversals long before I started this blog, and I've seen them pump a number of stocks that have all tanked.  In no particular order I've witnessed them pounding the proverbial table to drum up buyers for SBOT, MOBI, CLDN, LEJU and WBAI over the past 3+ years, touting long term value potential.  

If you want to check the charts on those stocks be my guest.  Those buying in expecting price appreciation over the long haul got creamed.  

RYU.V on the other hand was a stock I saw getting spammed all over a site popular for Canadian listed stocks, stockhouse.ca.  They'd just announced that Gwenyth Paltrow was going to promote their clothing line. I've seen so many celebrity endorsements for penny stock companies over the years, and have yet to see one deliver long term value to shareholders.

So why is identifying inflated stocks so much easier than finding companies with low share prices poised to make gains?

That's pretty easy to explain in my opinion.  Inflated stocks that are poised to drop big, they are SCREAMING for attention.  Why?  Simple....the smart money holders who want to sell need dumb money suckers to come in and pay the inflated price.  

Companies that are trading at or near their lows on the other hand, the good ones in my experience aren't experiencing heavy volume and don't have much in the way of news.  So it can be hit and miss trying to discern which ones might be good candidates.  

I have put out some bullish opinions on a couple that have born fruit though.  I wrote up EGT.V when it was 14 to 15 cents and it got up around 40 and is still trading in and around 28 to 30 cents.  And HMPR was at $1.81 when I expressed my reasons for being bullish and it just closed up over $1.90.

Hampton Road Bankshares is actually a company that I truly believe has the potential to deliver long term shareholder value.  That's not to say it is without risk, but to my eyes the fact that they are turning  a profit gives them a lower risk profile as compared to companies using their shares as capital to stay afloat.

Ultimately I think its every bit as important to know what to avoid as it is to know what to look for. Who wants to pay $6+ for a stock like KTOV only to have half your money wiped out in a matter of weeks.  

I've also mentioned some stocks that have come down, RVX.TO is one that I wrote about when it was trading at $1.34 and this past Friday it closed at $1.23 for a drop of 8.2%.   With RVX though I haven't seen any suspect pumping and table pounding all over social media....if that happens my opinion will change in all likelihood.  And if that does happen it might be reasonable to expect to see the PPS climbing well above even $1.34....only time will tell.  Ideally I'd like to see them succeed with the Phase III clinical trial.  

News Hype and Promotion boys and girls.  In my opinion that is the Unholy Trinity of the stock market that should be avoided.  Beware when something looks too tempting, things are not always as they appear.

Is Ziopharm guilty of fraud?

According to Running USA it takes the average man 4 hours 19 minutes and 27 seconds to run a marathon.  (SOURCE)

What does this have to do with Ziopharm?  You will see.

Imagine a sports drink company having 10 runners drink their product before running a marathon. Now imagine that all 10 beat the average time it takes to run 26 miles.  That might seem impressive. Maybe a press release would be put out citing the results.

***************************************************************

July 16, 2016  ATB Energy Drinkers Excel At Marathon

ATB Industries, (Symbol POS.OTC) the makers of sports drink ATB Energy, is pleased to announce that at the recent Quahog Marathon ten male runners drank our product before running the race. While the average time to run a marathon for a man is over four hours, the ten runners who drank ATB Energy before the race had an average time of just under 3 hours.

ATB CEO Peter Gryphon had this to say about the results:  "We are very encouraged by this news, although ten is not a large number it strongly suggests that using our product might provide a net benefit to individuals looking to increase their performance.  And if these results are any indication it could be reasonable to expect that athletes in other sports could perform well above average as well".

**************************************************************************************

Sounds good of course.  But maybe those 10 runners were all veterans of the Boston Marathon, where men aged 18-34 must qualify with a time of 3:05 or less.  Maybe one of them was even a previous winner of the Boston Marathon where winning times are typically a little over 2 hours.  That would certainly improve the overall average.

Aren't numbers fun?  Taking the hypothetical PR at face value without asking any questions....investors  might just storm in and buy ATB Industry stock, perhaps giving it a lift.

Would this be an example of fraud?  Personally I don't think so.  Nothing in the PR states that ATB Energy caused these runners to run outstanding times, its merely suggested that there might be a benefit.  But what if subsequent to the marathon 3 of the runners died of acute kidney failure after they continued to consume the product?  Would the company be guilty of fraud if they failed to disclose this fact to their investors in a timely fashion?  What if the company also failed to notify the appropriate regulators?

So what does this fictitious example have to do with Ziopharm?

On May 18th Ziopharm put out a PR with the headline:

ZIOPHARM Announces Clinical Data Highlighting Favorable Interim Survival Results with Gene Therapy Candidate Ad-RTS-hIL-12 in Brain Cancer

The PR cites median survival rates for patients with glioblastoma as being between 6 and 7 months for those who have had multiple recurrences, and just 3 to 4 months for those who have failed salvage chemotherapy with drugs such as temozolomide and  bevacizumab.  

The company then went on to report that 10 of 11 patients enrolled in the study are still alive, which caused many social media participants to tout Ziopharm's therapy as the reason for their survival, cause and effect.  

What the PR failed to mention (as with the ATB Energy drink example) is any of the details on the patients.  How long they'd already been living since being diagnosed or had any of them undergone chemo that succeeded in shrinking their tumors.  The purpose of the PR seems perfectly clear to me, its right there in the subject line.  The company wanted to highlight survival results, even though a Phase I trial isn't even designed to measure survival.  The primary objective of a phase I clinical study is to prove safety, or efficacy for those who like the fancier term.

Thanks to the fact that one of the participants in the trial, (a Mr. Charles Peacock) authors a blog we know some details on at least one patient.  Mr. Peacock's blog reports that he was diagnosed with glioblastoma back in April of 2012, over 4 years ago.  So obviously this courageous individual has already beaten the averages and then some....like the Energy Drink users above, this guy is already a champ.  

His blog also relates how he had successful chemo treatments with temozolomide.  I wrote a blog piece already on this warrior and his outstanding spirit here:

http://www.avoidthebag.com/2016/05/desperate-ziop-pumper-cites-clean-mri.html

Now....In my opinion Ziopharm's PR of May 18th, it isn't an example of fraud.  I do think touting survival rates in a study not designed to measure that variable is a bit suspect  and I consider it possible it was put out to support Ziopharm's falling share price.  

After trading up around $9 in mid April 2016, by  mid May the PPS had fallen all the way down to about $7.  Did the PR help the PPS?  Well it didn't hurt, by early June the PPS had recovered to as high as $8 per share.  

Now let's fast forward to the present, the news that came out Friday July 15th 2016, that the total number of deaths of patients in the trial has now climbed to three.  

http://ir.ziopharm.com/releasedetail.cfm?ReleaseID=979750

The first two deaths were reported as being at 3.7 and 6.9 months after treatment.  But the news doesn't give any details on these patients, such as how long ago they were diagnosed or if previous chemo treatments were successful or not. The company asserts that the deaths were unrelated to the study drugs.  The third and most recent death they say "has just been reported to us", with this brain cancer patient suffering a cranial hemorrhage.  The PR calls this "an isolated" case.  

I don't like fuzzy words, and "just" is fuzzy.  Was it "just" today, "just" last week or "just" last month? The PR goes on to say that they haven't yet notified the FDA of the most recent death.    

Enter the lawyers:

Two PRs came out from law firms saying they are investigating possible violations of security laws, specifically about sections 10 (b) and 20 (a) of the Security Exchange Act of 1934.  Section 10 deals with misstatements or omissions made by a company that could constitute fraud while 20 seems to relate to the question of individual and/or corporate liability. 

Just as my medical background is restricted to high school and university science courses, my legal bona fides are equally thin.  With that being said I believe a lot will depend on timing.  How long did Ziopharm have this information before it was released to the investing public?  

The legal PRs also state that Ziopharm was engaged with an investment bank in an effort to raise 50 million dollars, however the news says that the deal has now been abandoned.  Those who have taken the time to read Ziopharm's SEC filings already know that the company does not have sufficient capital to fund operations to the completion (if successful) of clinical trials and that they'll be in need of financing by the end of 2017 or possibly even sooner.  

For investors wanting to make inquiries of their own, here are the relevant PRs from the law firms announcing their investigations:

http://finance.yahoo.com/news/important-investor-alert-goldberg-law-001600961.html

http://finance.yahoo.com/news/federman-sherwood-investigates-ziopharm-oncology-202100911.html


Disclosure:  I have no current position in ZIOP however I may in the future, in all likelihood going short.