An intriguing penny play - KUB.V - Ukranian Oil and Gas (TPNEF OTC)

All three of my regular readers know I'm not big on fundamentals, and that I like to run away from the herd.  Penny stocks are the ultimate in risk/reward plays, suitable only for risk capital with me. That means its money that I can afford to lose.

Of course I still like to win, so I don't just toss money at any old stock just because its trading for a few (or in this case just a couple of) pennies.

A friend of mine suggested I take a look at a few stocks he had on the radar, and after reviewing the metrics I like to look at and consulting the charts it didn't take me long to form a bullish opinion on one of his selections, Cub Energy Inc.  I opened a long position last week, so obviously the opinions I am offering up are biased and should be viewed in that light.

KUB.V has been publicly traded since 2010 and its been as high as 80+ cents CDN back in late 2010 and early in 2011.  As recently as early 2014 it was still trading over 20 cents a share.  Why the big drop?  For those living under a rock you might have heard about a little political unrest with a small parcel of land called the Crimean Peninsula, I think that likely had a lot to do with it.   

Okay okay....so what?

I mean just because it used to be an 80 cent or a 20 cent stock....in the here and now its trading around 2 little Canadian centavos.  What in the Sam Hill (where the hell did that expression come from) makes me think that it has a chance to go back anywhere near those levels?

If you read the posting before this one you will see that I view the markets as being incredibly manipulated, its hardly an uncommon opinion.  And the reason I think KUB.V has the potential to go higher is that I believe its been undergoing accumulation.  In fact I think its been under accumulation since early in 2015.

That's going on two years of course, which is a pretty long time.  Why so long?  Well, with about 311.7 million shares outstanding, if there are smart money players who've been loading up, it takes time.  

Here's the chart.

What sticks out to these old eyes is firstly that big volume spike in early 2015.  I see that as smart money players potentially, (and inadvertently) waving a flag announcing the start of an accumulation phase.

What's important to see in the wake of that big volume surge is whether the stock finds support, which obviously it did around the 2 cent level.  It didn't just find support however, it actually climbed as buyers pushed the PPS up around 5 cents for a time in the summer of 2016 before the PPS fell back to the 2 cent area.

The next thing that sticks out is that second  volume surge in July/August of this year.  I see that as another potential flag signalling that the accumulation phase is almost over and that KUB may be primed to be head back to loftier levels.

Back to 20 cents certainly seems possible to me, and perhaps even all the way back to the 80 cent range.  Only time will tell if I'm right, and if I am right then how high KUB might go.

There are other aspects that go into my analysis of course.  I also look at share count, wanting to know if the company was printing shares and dumping them into the public market.  I already made mention that the number of issued shares is 311.7 million.  Well its been at that level since June of 2013, over three years ago.  Whatever the company has been doing to survive with a 2 cent share price from 2015 forward, they haven't been dumping shares on retail investors.

The other important metric for me is short selling because it gets right to the mechanics of the market, something far more important than fundamentals in my opinion.  You might think there would be no point in shorting a penny stock trading for less than a single dime, but regardless KUB has had its share of short sales over the years.  

Back in February of 2015, at the time of that first large volume spike....short sales went from 0 to 78,000.  And short interest now sits at over 200,000 current up to October 15th 2016.  The only logical reason to short a 2 cent stock in my opinion is to manipulate the PPS.  And it is further my opinion that the most logical reason to do that is to encourage selling and discourage buying.  Some refer to is as "shaking the tree".  

Who would want to encourage selling and discourage buying with a 2 cent stock trading near historical lows?  Perhaps its those looking to accumulate because they know, (and perhaps they have the tools available to effect it) that the PPS will be climbing.  

Fundamentals don't mean much to me, but I know others rely on them heavily.  What could change with Cub Energy's fundamental picture that might entice other investors to pay substantially more in the months and maybe even years ahead?  The calming situation in the Ukraine certainly helps, and a rising price for commodities like Natural Gas would do the trick I believe.  

For those sufficiently intrigued to do further research I will invite you to read this recent article from Bloomberg:  Ukraine Starts Winter With Half-Empty Natural Gas Stores

That's enough for now, if KUB does take off though I'll probably do another post to pat myself on the back, I am something of an attention whore after all :-)  

Do note that for those wanting to buy on the U.S. side the stock trades OTC with the symbol TPNEF..

Good luck