Reshuffling the deck - The dangers of marrying a stock

Opportunities come up every day on the stock markets.  Right now I bet there is a 1 cent stock poised to go to a dime, a 10 cent stock primed to hit a buck and a $1 stock that will be trading for more than $10 before too long.

Of course unless you have a bottomless bag of money at your disposal, then you're going to have to sell some stocks to take advantage of opportunities that arise, and hopefully you'll be taking profits. That's something I've been doing of late with a number of the stocks that I've written about here at Avoid The Bag.  

As disclosed yesterday (Oct 24, 2016) I closed out my position in Lithium Americas (LAC.TO) for a nice capital gain.  I also decided to reduce my position in Eguana (EGT.V) by half, realizing a 100% profit on the shares I sold, having bought them at 15 cents.  Xenith Bankshares (XBKS) is another I reduced by about one third, having a cost basis of $1.60 means a return in excess of 40% on the shares I sold.  With all those capital gains I also booked a capital loss on LED Medical (LMD.V), a penny stock I thought was a good prospect to get some attention, but it didn't pan out, at least not yet.

In my younger days selling would have been harder, but I've learned some valuable lessons over the years, both from my late great Father, as well as from a most invaluable teacher called Experience.

Too often I find investors fall head over heels in love with their stocks, and all too often just one. Putting all your eggs, as well as all your money, in just one basket is not only incredibly risky, its also incredibly stupid in my opinion, but people do it all the time.  Why?  Because they've fallen in love. Its something that's happened to me before, and something I try to avoid now.  

I still like EGT and XBKS which is why I didn't sell out entirely.  I'm still holding some LMD.V as well in hopes it will start to attract the attention of investors.  The only stock I sold off completely is LAC, although I still think they have a chance to make a go of their Lithium Mine with SQM's backing.  

So what are the opportunities I saw?  One is in another stock that trades in what I'll call the "New Energy" space.  Ideal Power Inc. trades on the Nasdaq with the symbol IPWR. Beside recent developments and potential for stocks in the Energy Storage market, I love the way the chart looks.

I'll be doing a specific blog post on Ideal Power in the days to come.

Good luck to all three of my loyal blog dawgs, and I hope you're making money....not just on paper though, but with real capital gains that come from turning shares into money.

Cheers.

Sunday thoughts on when to sell....

Its Sunday again, time to sit back and relax and consider those things in the market that daze and amaze, astound and confound.  The things that both thrill and send chills down the spines of retail investors.  Today I'm going to write about selling, not just any selling though....about selling after you've made profits.  

I've put forth some long ideas here at Avoid The Bag that have made some nice gains:

Lithium Americas at $0.75 cents CDN now trading over $0.90 with  gusts up north of a dollar.  

http://www.avoidthebag.com/2016/04/lithium-americas-cup-and-handle-forming.html

Eguana Tech when it was $0.15 CDN now trading around $0.30   

http://www.avoidthebag.com/2016/05/the-lure-of-clean-energy-eguana.html

Xenith Bankshares (pre-merger when it was HMPR) at $1.81 now trading for $2.26.

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

Resverlogix at $1.25 CDN now trading at $1.53

http://www.avoidthebag.com/2016/06/resverlogix-phase-iii-clinical-trial.html

I also wrote about Aurora Solar at $0.15 CDN and it is currently trading for 10 northern coppers: http://www.avoidthebag.com/2016/07/the-lure-of-green-energy-aurora-solar.html

Four out of those five stocks that I've written bullish opinions about are green, which means there is the potential for profits.  Not bad....gains are good, but until those gains are crystalized by selling, there is no profit.  

My legion of loyal fans (all three of them) have probably come across someone who's owned a stock that dropped in value and heard them say something like:  "Its not a loss until I sell".  And that is true, but it also works when a stock climbs.  There's no profit made until the shares are unloaded. Paper gains and paper losses are notional and only become real once a stock is sold.

But selling is hard, and I will suggest it can be even harder after big gains than after a stock has dropped.  Why?  Psychology, and the triumvirate of emotions that seasoned market players know oh so well: Fear, Uncertainty and Doubt....or FUD for short.

FUD doesn't just rear its head when a company's stocks falls, it also pops up after a stock has climbed.  You've bought my favorite hypothetical stock ABCD at $1.00 per share when things were quiet and volumes were light.  You've read all the filings, the PRs, all the industry stories related to ABCD, you even know the histories of the CEO and other board members.  

Then ABCD starts attracting attention, volumes pick up....it getting mentioned in social media. The PPS starts climbing, to $2 then $3....before you know it ABCD is trading at $5 per share and you're sitting on a 500% paper gain.  Its not a capital gain though because you haven't sold.

And here's where FUD kicks in.  Let's say you bought 5,000 shares for an initial investment of $5,0000....and now those same 5,000 shares are worth $25,000 for a paper gain of $20,000 if you sell. But things are obviously going well now, better than they were when you bought shares at $1. Maybe there's analyst coverage, or a newsletter has picked up ABCD and is touting it to its readers. Those storming into ABCD are all over social media with predictions of $10 and $20 valuations to come.

What if they're right?  What if ABCD does go to $10...or even $20.  Those 5,000 shares could be worth $50,000 or maybe even $100,000 for monster gains in other words.  A new car, a bigger and better house....that dream vacation.  Sure $20,000 profit is incredible, but damn!  Won't you be kicking yourself if you take $20,000 when you could have had $95,000 in profit?

Time to take a deep breath.  A lot of people start investing with the goal of making huge "life changing" returns.  The stock market is the epitome of the Dream Factory.  And people do fall in love with their stocks, digesting every tidbit of news and opinion that hits the internet.  Whether its something from a respected analyst, a Seeking Alpha or Motley Fool author, or some moron like me with a blog.

I will suggest that you consider, when a stock has made big gains, whether or not its a profitable company.  Of the five stocks I mentioned at the beginning, four of them are not....

Lithium Americas is a junior mining company developing a Lithium mine in Argentina, Eguana makes inverters for battery storage power systems, Resverlogix is trying to develop a drug that will reduce major adverse cardiac events and Aurora is in the solar panel space.  None of these four companies is profitable.  Only Xenith Bankshares has actually achieved positive earnings.  

Next I will suggest you look at recent volumes.  Has trading in the stock exploded or is the PPS climbing higher and higher on light volume?  I have a rule of thumb, if between 5 and 10% of the float trades in a day, I start thinking about looking for the exit.  And that is doubly true if higher than historic volume happens in tandem with lots of Promotion, News and Hype.  Especially when its a company with a history of using shares to fund operations, pay salaries and keep the lights on.

My ultimate goal with this blog is to help retail investors understand the forces at play.  And I will suggest that these forces are most active when a stock has made big gains.  The goal of the industry players, in my opinion, is to get retailers buying when stocks are high while the true professionals sell.  And if a retail player is lucky enough to have bought in early and is sitting on big gains, to keep that retailer holding tight.....to fall in love.

I'll end with my favorite piece of market wisdom:  Nobody ever went broke taking profits.  And if the stock you sold at a profit keeps climbing, and you miss out on even bigger gains?  Then cry into the money you made.  

Good luck

A tale of two Canadian stocks - RVX.TO & LAC.TO

Resverlogix (RVX.TO) is a development stage biotech and Lithium Americas (LAC.TO) is a junior lithium mining company.  At first glance you might think the two have absolutely nothing in common, but dig a little deeper and I can see some definite similarities.

I view both of them as miners.  LAC is the more obvious, seeking to mine lithium to meet exploding demand at a time of limited supply.  Resverlogix is also mining, but in a more metaphorical sense. This development stage Canadian biotech is ''mining'' for a treatment of cardio vascular disease (CVD) for patients with diseases like diabetes.  

I engaged in a little trading today (Thursday Aug 25, 2016), taking some profits on LAC with some of the proceeds being used to increase my position in RVX.  Both (sic) of my regular readers are well aware of my favourite bromide, ''you'll never go broke taking profits''.  I sometimes need to remind myself of that when I'm sitting on significant gains, which was the case with my LAC holdings.  I didn't sell out my entire position, a little over one third.

I still like Lithium Americas, a lot.  But the junior lithium mining space has become very crowded with a number of recent entries engaging in heavy promotion to attract investment.  LAC has seen its PPS falter meanwhile after spending a few weeks over $1.00 in June and July.  

Meanwhile there are a few newly minted Lithium juniors making jumps despite a lack of feasibility studies, construction permits or partnerships with established players.  But that's life with high risk speculative penny stocks.  The dust will settle and there will be big winners and big losers.  Many will find the stock that they saw being touted by an email blast or from a flashy ad that showed up on a sidebar....that it wasn't the pot of gold they thought it was.

SQM has been getting some press of late, and given the 50/50 joint venture they have with LAC I still like the chances for their Argentinian mine to enter production and for LAC to really catch fire. But it could be a while before that happens, and there are always risks....it might not happen at all. So taking some profits made sense to me.

Resverlogix is another matter,  I view RVX as being incredibly undervalued right now.  And there have been some recent developments that have caused me to raise an eyebrow.  The first thing that caught my attention was the cancellation of the Annual General Meeting (AGM) which was slated for Oct. 5th.  The cancellation was announced without a PR, instead a filing on SEDAR was issued.

There has been nothing further from the company, however some message board participants have reported receiving word from the company that the AGM has been rescheduled, but that the details are not going to be released until the agenda is finalized.  I take message board chatter with a big grain of salt and sent a message to the company myself yesterday that hasn't yet been answered, I sent another today.

Then today at 1:05 PM I saw some trading activity that caught my eye.  A firm by the name of AltaCorp engaged in 14 trades by my count on the buy side.  I tabulated it at 10,500 shares with the buys starting at $1.20 and ending at $1.24.  I'd never seen or heard of this AltaCorp before and it turns out, like Resverlogix itself, they are based in Alberta....hence the Alta part of their name I assume, a common short form for Alberta.

In looking over AltaCorp's website in the about section, I didn't find anything about them providing brokerage services to individual investors,  They seem more focused on the investment banking side with M&A and equity financing type activities.  The sudden appearance of AltaCorp on the day's reported trading along with the cancelled AGM led me to speculate that maybe something was and is brewing.  

That combined with a check of the chart pushed me to take some profits on LAC and to use some of the proceeds to increase my RVX position.

Its all mining in my view, whether its to find lithium or an effective treatment for Diabetes patients....here's hoping they both strike pay dirt.  

Lithium Americas - Short Interest Continues to Climb....

Short interest for Lithium Americas isn't huge by any stretch, up to July 31st 2016 its only 1.42% of the total outstanding, or 4,254,140 shares.  Still that represents an increase of 691,631 from the last update of July 15th when the total was 3,562,509 shares.

I sometimes refer to short selling as "artificial dilution".  There are just shy of 299.5 million shares of LAC that have been issued, current up to July 31st.  However there are another 4,254,140 on top of those 299.5 million shares sitting in people's brokerage accounts, because some people have bought shares that don't physically exist.

I want to be perfectly clear on one point here.  I am not one of those commentators who is going to tout a possible short squeeze as a reason for being bullish and to encourage others to buy shares of Lithium Americas.  Why?  Quite simply because short sellers are frequently right, not always, but they have a very good batting average.  Better than longs in my opinion, that's why Hedge Funds are the whales of 'The Street'.   

I do not view short players as evil or "out to destroy shareholder value" as you often see on message boards and investor forums.  For me they are an essential part of the game.  Bears do two vital things, they provide for an orderly market and they improve liquidity. Without short selling the volatility in the markets would be insane, and buyers might find it difficult to locate willing sellers.

Thankfully, (for me) as noted at the beginning, the short position in Lithium Americas is small.  If it were in and around 10% of the OS count or higher, then I would have to reevaluate my position.  But at less than 2% of the total, I view it as noteworthy but not something to worry too much about.

Why noteworthy?

To short any stock a bear needs to have a big bank roll because of margin requirements.  And to short a stock like LAC, (trading at less than one Northern Peso or only about 72 US pennies) not only does a player need deep pockets but also cajones made of near 100% cast iron.

Short interest for LAC has been climbing steadily for months.  Back on March 31st it was just 769,200 shares.  By May 31st it had climbed to over 1.9 million and now it sits at over 4.2 million. And during this time LAC has gone from around 50 cents a share at the end of March to 96 cents currently...nearly doubling.

Bears must be hurting.  

But remember, for a long player holding a stock that has dropped...a paper loss isn't a capital loss until the shares are sold.  And for a short seller a loss on a rising stock isn't a capital loss until the position is covered, or bought back.

Many longs, if they buy 10,000 shares of a stock at a dollar....and if they see it drop to 75 cents, they'll buy another 10,000 to lower their average cost to .875.....And if the price drops further to 50 cents they'll buy another 10,000 shares to  bring their average cost down to 75 cents.  Of course that's just an example but you get the idea, its called averaging down.  If someone is convinced that a company will be a long term winner, and assuming he or she has the capacity to do it....averaging down can be great strategy if the company being invested in succeeds.

Bears can do the same thing, just in reverse.  

Someone who shorted 500,000 shares of LAC at 50 cents, could short another 500,000 at 75 cents and another 500,000 at $1.00.  Now our notional bear would be short a total of 1.5 million shares of LAC at an average selling price of 75 cents.  Those sales would have netted Mr. Bear $1,125,000 but if forced to buy them back at a buck, they would cost him $1.5 million for a loss of $375,000 plus brokerage fees.  But it isn't a loss until he either chooses or is forced to cover.  If he can ride out the rising share price, and if the company he's short on ultimately fails....then he can still be a big winner.

See what I mean about short sellers needing to have deep pockets?  Margin requirements for shorting a penny stock like LAC can be huge.  Yes it trades on Canada's big board TSX and not the riskier Venture, and yes they have the JV with SQM and are a holding in the only Lithium ETF, but its still a penny stock.  And shorting a penny stock can mean margin requirements of as much as 100%.

Let me put that in perspective for you.

Using the previous example of someone who's short 1.5 million shares of LAC at an average selling price of 75 cents CDN.  That means the short seller netted $1,125,000 from the sales.  But if LAC is trading for $1.00 CDN a broker can require the short seller to have $3,000,000 on deposit in a margin account, $1.5 million for the current share value plus an additional 100% on top.  And if LAC climbs to $1.25 then the amount of money in the margin account would have to go up another 25% to $3,750,000 in total....and so it goes.  

Now, it could be that there are long players looking to accumulate LAC who have used short selling as a means to "shake the tree".  Retail investors are notoriously price sensitive, so seeing LAC drop from $1.10 down to 90-95 cents, its reasonable to expect that some likely decided to sell.

But there are many commentators out there who are calling the overall Jr Lithium mining space a bubble.  I do not consider it unreasonable to expect that there might just be a Hedge Fund out there, and maybe more than one, that have decided to play Lithium Americas to the short side.

Canadian Hedge Funds are smaller than their American cousins, but still sources like the Financial Post report many with $100 million or more in assets, and a few with over $1 billion.  Those are very deep pockets.  And if LAC does start moving higher again they may just be able to ride it out in hopes that the longer term bubble thesis proves accurate.   

There are a number of expected events that could drive buy side interest in the coming weeks and months:

• Project update for the Argentinian mine
• An updated Feasibility Study (FS) with more current Li prices
• Updates on the Nevada property
• The start of construction at Cauchari-Olaroz

Anyway we'll see how it all plays out.  I'm a shareholder here so my opinions are not without bias. And with that being said I still consider the risks here to be substantial, with a very real possibility for losses from current levels.  And should the PPS take off causing a Hedge Fund to find its survival threatened?  I won't cry, I don't dislike short players....they're part of the game, and I'm sure they don't cry when retail investors lose money.

Lithium Americas (LAC.TO) $1.00 resistance becomes $1.00 support....

LAC.TO still hasn't seen the "clear sky break out" I've been anticipating from the Cup & Handle chart pattern I've remarked on in earlier posts.  Perhaps it never will, I still like the chances but there's no such thing as a slam dunk, not in the public markets.

But something positive has happened.  

After butting up repeatedly against resistance at $1.00 CDN the stock finally broke through on June 30th 2016 and from that day until now it has not closed below one Canadian dollar.  From July 4th (Canadian markets are open on the 4th, closed on July 1) to present the lowest LAC has traded is 97 cents during the trading day.  But even on the two days shares dipped to that 97 cent level, bulls pushed it back up to at least $1 at the bell.

Does that mean LAC won't fall back below $1 CDN?  No, again...there are no sure things in the markets.  But it is a bullish technical indication going forward when a level of resistance becomes of level of support, which is what the chart shows.

Also take note of the volumes.  The green bars represent volumes when the PPS closed up for the day, and the red bars correlate to days when the PPS closed down.  Another bullish indication is when prices climb on heavier comparative volume and fall when trading is lighter.  LAC closed down .01 cents on the TSX Wednesday (July 13th 2016) but volume was only 737,411 on the various Canadian exchanges, and only 530,134 on the main TSX.  

That's about one quarter of the 3 month average volume on just the TSX, which is 2.1 million. Should volumes pick back up into the 5+ million range I expect to see another + spike in the PPS.  And maybe even that clear sky breakout I believe the Cup & Handle chart has been predicting.

How high do I think LAC might go?  That's a tough question, but the first obvious line of resistance in my opinion is that $1.15 price level that shares hit on July 4th.  If LAC can get above that $1.15 CDN mark then I'm looking at the US side where Lithium Americas trades with the symbol LACDF.  

Just as $1 CDN proved a point of resistance, I think $1 USD could likewise translate into another psychological barrier.  The volumes on the Canadian TSX exchange are more robust, but volumes south of the border are nothing to sneeze at either.  Average daily volume for the past 3 months for LACDF is just a hair shy of 700,000 per day.  

$1 USD is around $1.30 Canadian at current exchange rates.  And full disclosure, I have an order to sell a portion of my shares in around this level.   Will my sell order fill?  I like the chances, but for a third time now....obviously, there are no sure things.  

If history is any guide, I have a habit of selling too soon in any case, witness Nemaska.  If LAC busts through $1 USD and keeps climbing....oh well, I'll cry into the money I made.  But not too much, I'll still be holding what I consider a significant position having only taken profits on a little over one third of my shares.

As I say so often here at Avoid The Bag, repeating the lesson my late great father taught me, nobody ever went broke taking profits.

Good luck and please take note of the disclaimer at the very bottom of this blog.  Also comments are always welcomed provided the tone is reasonable and absent of the usual pumping and bashing seen on most message boards.

Who shorts a penny stock and why? Lithium Americas

Lithium Americas is a penny stock.  I would put an asterisk after that however, because I don't believe it qualifies as your typical penny play for a number of reasons.

• LAC trades on Canada's big board TSX exchange, not the lower profile Venture
• The company recently announced a 50/50 JV with incumbent producer and NYSE listed SQM for their Argentinian project
• NYSE traded LIT, the only Lithium based ETF, has LAC as one of its holdings.

Regardless of those points however, LAC still qualifies as a penny stock by the strictest definitions.

With that being said, there is no hard and fixed rule for what qualifies as a penny stock.  For some any stock trading for less than one single dollar qualifies, others say $2, and some go as high as $5. Do note that in US funds LACDF is currently trading under $0.80 cents.

If you're looking to sell LAC short, for all intents and purposes it is a penny stock.  

I'm often surprised by the fact that a lot of retail investors really don't understand short selling. Pretty much everyone understands that its a ''bet'' that a stock's price is going to fall, but beyond that many don't understand how it works or how one might profit from it.

A PRIMER ON HOW SHORT SELLING WORKS

It might help to think of something other than stocks.  Imagine you have a friend with a really fancy watch, one that is Swiss made and is worth $5,000.  Now imagine you find out that this Swiss watch contains a cancer causing element, and that news is expected to be released in another week or two.

How might you profit from this knowledge?

You could borrow your friend's fancy expensive watch, maybe give him $100 to lend it to you saying you need to impress some people at a conference or something.  After borrowing the watch you then go out and sell it immediately, netting $5,000.  But of course your friend wants his watch back. When the news comes out about the carcinogenic element you're able to buy it back for say $100.  

You just made $4,800 from something you never owned.  $5,000 from selling the watch less the $100 you paid to buy it back and the $100 you gave your friend to loan it to you.   

Stocks are no different.  If you have say 100,000 shares of LAC (or LACDF) sitting in your brokerage account, then those shares could be loaned out to someone to be sold short, just as with the watch in the above example.  The individual borrowing your shares will have to pay a fee of course, and with penny stocks it can be hefty, but it can be done.  

If the 100,000 shares are sold for $1.00 CDN the short seller profits provided he is able to buy them back at a lower cost.  If LAC were to fall to .50 cents, then our short selling bear could take $50,000 out of the $100,000 he got from selling the shares short and buy them back, returning them to the broker they were borrowed from.  In this example the short player would have made $50,000 less brokerage and trading fees.

Clear as mud?

Take note though, shorting a stock is exponentially more risky than going long.  If you buy 100,000 shares of LAC at $1 per then the most you can lose is $100,000, that's a lot of money certainly, but its nothing compared to the theoretical losses a short seller could incur.  While a stock cannot possibly go below $0.00 there is no fixed limit as to how high it could go.  

CYNK was a penny stock pump and dump that went from around 5 pennies to up over $20. 

Imagine someone shorting 100,000 shares of CYNK at $1.00 and then being forced to buy it back for $10, $15 or $20....The shorting of 100K shares of CYNK at $1.00 nets $100,000 but if a margin call were to force the short seller to cover at $10, then those shares that netted $100,000 would cost $1,000,000 for a loss of $900,000....at $20 per share those losses double.  OUCHIE!!!

Shorts have to be hyper careful, obviously.  Bears have a reputation for being incredibly diligent in their research because of these risks.  And it is for this reason that I give bears a lot of respect. Facing the potential for losses that, in theory at least, could be limitless....they had better be pretty damn confident in their decisions.

That is why, if I see a stock with 10, 20, 30% or more of its outstanding shares sold short....I take notice.  There are stocks with big short interest of course, but typically they're trading much higher than a single Canadian dollar.   

SHORT INTEREST IN LITHIUM AMERICAS CLIMBS

LAC is nowhere near even 10% short interest however.  In fact its only at 1.14% as of June 30th 2016.

But the raw number is still enough to raise an eyebrow.  The number sits at 3,391,624 and again, that is current up to June 30th 2016 as per the site StockWatch.  Up to June 15th 2016 the number had been 3,044,216 for an increase of 347,408 shares.

In fact short interest for LAC has been climbing steadily since the company completed the merger with Western Lithium (former symbol WLC) and reverted back to trading under the symbol LAC.

Up to March 31st of this year the number of shares shorted was 769,200  By April 15th it had risen to over 1.7 million, then over 1.9 million as recently as May 31st and now (up to June 30th as noted) it sits at over 3.3 million.

On March 31st LAC was trading for less than 50 cents, by April 15th it had climbed to up around 80 cents. On May 31st the PPS closed at 85 cents and now it sits at $1.01 after trading as high as $1.15 on July 4th 2016.  

Obviously short sellers made a bad play.  Or did they?

If you're going to short a stock you better have deep pockets, and that goes double for a penny stock because of the higher margin requirements.  If you're using a discount broker like say BMO, TD or Quest then you can't even short a penny stock regardless.  There are firms that will accommodate those wanting to short penny stocks of course, but you better have a big bankroll.

Just for arguments sake let's assume that those 3.3 million of LAC that have been shorted, let's assume it is one single individual.  And again for arguments sake we'll say the average price they were sold at was .75 cents....half way between 50 cents and a buck.

3.3 million shares sold at .75 cents would net the short seller $2,475,000.00....a hefty sum certainly. But our hypothetical bearish friend doesn't get to go out and spend that money, it has to stay in a margin account.  And that's not all, to guard against a climbing share price our bearish friend will be required to have extra cash in that margin account, perhaps 100% more.  That would mean another $2,475,000.00 on top of what was made from selling the shares.

Our short selling friend now has close to $5,000,000 tied up.  And it gets worse.  LAC isn't trading for $0.75 now, its at $1.00....which means $3,000,000 to buy them back and at 100% an additional $3,000,000 in the margin account.  If the short seller can't come up with the extra million?  Too bad so sad, the broker can then use the $5,000,000 in the margin account to buy the shares back.  

I'm going to wrap this up, there's probably only one or two people who will even bother to read this all the way to the end anyway.

It is my belief that the short selling LAC has seen, that there's a good chance its being used by parties looking to inject some Fear Uncertainty and Doubt (FUD) into retail shareholders.  That or possibly due to Market Maker Broker Dealers (MMs) being surprised by the surge in buying.

If it is MMs, I don't see LAC making a big move until or unless that number declines significantly. If, on the other hand, its accumulators engaging in a little (perfectly legal) manipulation....then hopefully they've accumulated far more than what they're short and perhaps they might be willing to give up the little Wyckoff game, if that is indeed what they're doing.

What?  You've never heard of the so called Wyckoff Method?  Well then, here's some more reading for you:

Secret 1930s Trading Strategy That Hedge Funders Don't Want You To Know About

Lithium Americas - The Gordie Howe of Canadian Junior Lithium stocks?

Gordie Howe was my late great mother's favorite hockey player.  She taught me a song about him when I was a kid:

Gordie Howe is the greatest of them all

He can stand, while all the others fall

And when he skates down ice

He shoots he scores

We love Gordie Howe

Sorry I can't convey the tune here.  I guess I could make a video with me singing it, but given that I can't carry a tune in a suitcase, ugh.  This pathetic and miserable  little blog would lose the few followers its gained if I foisted my singing (sic) talents on here.  

Why am I comparing Lithium Americas with the legendary Gordie Howe?  Its the second line of that tune, "He can stand, while all the others fall".

Over the past few months LAC.TO has been having a nice little run, and is currently trading at $1.10 CDN, the highest price it has ever closed at.  That's just 5 cents from its 52 week high reached interday the past two trading sessions.  

That compares very well to a number of other junior Lithium stocks that climbed higher and faster, but that have since fallen back (or down). 

• Lithium X Energy (LIX.V) went to $2.85 in April and has fallen back to $1.70 now.
• Nemaska Lithium (NMX.V) reached a high of $1.97 in May of this year but now sits at $1.29
• Pure Energy (PE.V)  up to $1.15 in April now at .69 cents
• Dajin Resources (DJI.V) 30 cents in April 19 cents now

So why has LAC continued to uptrend while all the other juniors mentioned have pulled back?  

I think the mostly likely culprit is dilution.  

LAC has 295,311,916 shares listed as outstanding as of June 15th. There has been some dilution, but not very much.  In March there were 291,974,008 shares.  The increase to 295,311,916 amounts to 3,337,908 more shares or an increase of just 1.1%

Nemaska by contrast showed 206,715,385 listed as outstanding in March 2016, and now that number has climbed to 236,137,873 for an increase of 29,422,488 shares.  That's an increase of over 14%, or about 1,400% more dilution than what LAC has undergone.  And Nemaska recently announced a proposed offering of between 43,480,000 and 52,174,000 more shares priced at $1.15 expected on July 8th of this year.

It should be noted that, concurrent with this share offering Nemaska has received tentative approval for an uplisting to the TSX, and I do think that will help in attracting investors, possibly even institutions which tend to shy away from the riskier Venture exchange.  

Lithium Energy has seen even greater dilution in percentage terms.  As of March 15th the company had 43,820,732 shares outstanding.  The most recent number, current up to June 15th is 60,538,202 an increase of over 16.7 million or 38%.  

Pure Energy, however, has not seen any dilution over this period, staying at the same 66,2 million from March until the most recently available update to June 15th, so obviously the drop in PE.V is not attributable to the printing of more shares.  Perhaps if some Pure Energy shareholders are reading this they can comment.

Dajin Resources though conforms to the dilution narrative having gone from 118.4 million shares in March to 130.9 currently for an increase of about 10.5% 

There is one notable difference between LAC as compared to NMX, LIX, PE and DJI.  The latter four companies all trade on Canada's Venture exchange while LAC trades on the more regulated big board TSX.  It appears that with NMX joining LAC on Canada's big board exchange, they'll be going from the AHL to the NHL, in keeping with the hockey metaphor.

Here's hoping LAC continues climbing, skating down the ice and scoring for shareholders.  

I should note, there is one Canadian listed Lithium mining company that hasn't pulled back, Orocobre, (ORL.TO).  However unlike LAC and the others mentioned above ORL has actually begun production so I don't consider it a "junior" The PPS sits at $4.75, just off its highest ever close of $4.79 on June 23rd, and its 52 week high (achieved interday on July 4 2016) of $4.87.  

Full disclosure:  I currently own shares in Lithium Americas, hence my opinions are not without bias. I have no position, long or short, in any of the other companies mentioned.  Do note that I do expect to sell some or all of my LAC holdings at some point.  

Speculative stocks like LAC and the others mentioned here comport significant risks.  Everyone has different tolerances for risk and different investment objectives.  The bottom line is to sell for more than what you paid, nobody ever went broke taking profits.  

The comment field is always open, but it is moderated....comments that are abusive, contain blatant pumping or bashing, won't be approved.  Pumping and bashing include statements of opinion expressed as fact, such as "Gonna go much higher" or "Look out below".

Can Lithium Americas break through the $1 CDN barrier?

Full disclosure right up front.

I have what I consider to be a significant position in Lithium Americas, traded in Canada on the TSX under the symbol LAC.  In the U.S. the stock symbol is LACDF and trades OTC Foreign.  I have not been compensated for writing this, (or any other) blog entry.  In point of fact I have not and will not accept payment to express an opinion on any stock, either bullish or bearish.

Also it is my full intention to sell my shares of LAC at some point.  And spoiler alert, I do think LAC will break through the $1 CDN barrier.  When I sell I do intend to write a blog post explaining my reasons, however in all probability it will be after the fact.  And if past history is any judge I tend to get out too soon, meaning those buying my shares have had the chance at gains themselves. Nemaska is a prime example.  

Bottom line, nobody ever went broke taking profits, and that axiom is doubly important with speculative stocks like LAC/LACDF from my perspective.

So why do I think the market will support a price of greater than $1 CDN for LAC?  Admittedly its not a big stretch at this point, with LAC sitting at .99 cents on the TSX as I write this.  Since April this is LAC's third kick at the one dollar can as evidenced by the chart below.

I wrote my first blog entry about LAC here at Avoid The Bag on April 27th, Before that I'd shared my opinions on Seeking Alpha.  Seeking Alpha Instablog.  April 27th ATB Blog Post  

In that April 27th ATB entry I offered up the opinion that LAC was seeing the formation of a Cup & Handle chart pattern, the stock was trading at 75 cents and I offered up the view that I could see it dropping as low as 65 cents (it got to 66) before rebounding and heading back to a dollar and beyond.

Well its pretty much made it back to the dollar mark, and I do think it will go beyond....and of course I will explain the rationale behind my opinions.  You can then decide if you consider my opinions rationale or not for yourself.

All my regular readers (all three of them) know that I'm not big on fundamentals.  I consider fundamental data to be any and all information available in the public sphere, and as such it is all dated.  Even if a company announces a merger or acquisition (as happened when LAC and Western Lithium merged), by the time the news hits I consider it already priced in.  Others might pump synergies and economies of scale, but not me.

There are however, events that I believe could serve as catalysts in the future.  

Lithium Americas has a corporate slide presentation available on line that is dated March 2016. (VIEW THE SLIDE PRESENTATION HERE).

In that old slide presentation the company cites a Feasibility Study (FS) done in July of 2012, obviously very old info, soon to be four years old.  In that presentation it cites the price used for Lithium Carbonate in its projections as being $5,500 p/tonne.  

I like conservative estimates, its better to under promise and over deliver.  But while $5,500 p/tonne might have been a reasonable number a few years ago, the explosion in Li prices I believe warrants an upward revision.  When Nemaska announced its updated FS in early April of this year it sent that company's share price sky rocketing from around 70 cents CDN up near $2.  Nemaska revised their Li Carbonate price upward from $5,000 to $7,000 p/tonne.

Then there's the elephant in the room, Tesla.  They will be having their battery Giga Factory grand opening on July 29th.  As the date gets closer I think a lot of Lithium Mining companies, both Juniors and Incumbents, will see their share prices boosted as a bright light shines on the entire sector.  Its the old:  "A rising tide lifts all boats" line of thinking.

And don't forget that Lithium America's recently brought David Deak on board as a Sr VP and CTO. Mr. Deak had spent his previous two years working for Tesla as a Senior Development Engineer according to his Linked-In Profile.  I am not suggesting that anything is in the works between LAC and Tesla, but I do consider it a possibility.

It is for these reasons, in combination with the chart, that I very much like the chances for LAC to bust through that $1 barrier and to make significant gains.  

But please take note....there is no such thing as a slam dunk in the public markets and in my opinion LAC still comports significant risks.  Everyone has different tolerances for risk, and different time horizons.  Stocks can be dangerous, and people do get hurt buying into hype and excitement and the risks here are very real.  

Ultimately any money made or lost, the person to be congratulated or angry with is the one that looks back in the mirror.  The comment field here is open, and while it is moderated, all I ask is that the tone be respectful with no brainless "lots of upside here" pumping or "get out now" bashing.  

Sunday morning musings on timing a perfect entry.....

Being something of a message board and social media junkie when it comes to stocks, there's a common refrain I hear from those I suspect to be retail investors just like me.  

Retailers will often hesitate, trying to decide on the optimum entry point.  "Is now a good time to buy"?  That's something I've frequently seen on stock sites, regardless of the equity being discussed.

When is the right time to buy?  You've researched a stock, and for whatever reason you've decided you want to buy in, but you don't want to make a purchase and see it drop almost immediately by 5 or 10%.  

Deciding on the perfect time is nearly an impossible task.  

Some swear by the technicals, and will draw lines out on a chart representing traditional support levels, then they'll put a limit order in based on that analysis.  Others will keep a close watch, and when they first see it start climbing they'll jump in with a market order, hopeful of catching some momentum which will launch them well clear of their entry point.

If you play the markets long enough, sometimes you will do well, and other times not.  And I would argue that even if you make the perfect decision on an entry point, the stock you just bought could still trade down 5 or 10% and maybe even more.  

How could that be you may ask?  How could someone time their entry perfect and still see the stock they purchased drop by a significant amount?  If someone times things perfectly that means it can't drop.  Right?  

In my opinion no, and of course I will explain.  

The first thing retail investors need to understand is that they are not buying shares directly from those selling, we're not dealing with auction style markets.  It doesn't matter whether its the NYSE, the Nasdaq or OTC, or any of the Canadian exchanges.  When buyers purchase a stock they're going through a Market Maker Broker Dealer, or MM for short.

We'll use my favorite hypothetical stock, ABC which we'll say is trading around $10.  I look at level II and see that the bid is $9.95 with an ask of $10 and that there are 100 lots showing on the ask.  So we'll say I decide to buy 10 lots, 1,000 shares and I put a market order in because I'm convinced ABC is going to be moving up any day now.  

My broker will then pass the order to the house showing that $10 ask, looking to get the order filled. We'll call the brokerage that gets my order Moonshot.  There's a problem though, while Moonshot is a MM for ABC that doesn't mean that they have clients with shares to sell, or any themselves for that matter.

Moonshot could pass on the order, telling my broker to go to another house, but invariably they'll simply fill the order by going short.  If they pass then they risk getting a reputation as a non-performer.  Brokers will by-pass non-performers because in the public markets speed of execution is everything.  

Of course mine is just a small little 10 lot order, 1,000 shares.  But what if I'm not alone and a number of other investors have been watching ABC and decided that $10 is a good price to get in at.

Market Maker Moonshot could find themselves short tens of thousands of shares.  MMs are in business to make money obviously, and they're not going to want to cover off a short position by paying more than what they sold at.

So what is a MM caught short to do?

Years ago the US Department of Justice (DOJ) documented a practise they discovered that they dubbed "Moves on Request".  Basically it involves MMs asking each other to change the bid and asks being quoted in order to give off an impression that a stock is either weak or strong.  You can read about it here:  

https://www.justice.gov/atr/case-document/competitive-impact-statement-9

Using my example of ABC which MM Moonshot has found themselves short on, the DOJ article documents how a broker who is short will contact other MMs and ask them to move their bid and asks down.  This has the effect of making the market for ABC look weak and it can reasonably be expected to drive the PPS down, allowing Moonshot to cover off their short position, buying back the shares sold for $10 at a lower price.  

The opposite would be done when Moonshot or another broker finds themselves with shares to move, asking other brokers to move their bids and asks higher to give off a bullish impression.

Why would MMs co-operate in this fashion?  Its a quid pro quo system, quid pro quo meaning "you scratch my back and I'll scratch yours".  Other brokers comply because they know they'll be in a situation where they too will need to make a "move on request" because they're long or short.

So even though a retail investor may have picked a perfect entry, he could still see the PPS fall after he buys in, that's life.  Sometimes its not a matter of timing the market, but rather of time in the market.  While some will get scared off and bail on a drop in the PPS, others will hold tight.  And if the stock they've bought is a good one that is able to catch the attention of buyers, then those that showed patience will have a chance at profits.

Sometimes you get lucky, it happened to me recently with LAC, the stock for Lithium Americas.  

Regular readers (both of you) will recall that back on April 27th I did a blog posting wherein I offered up the opinion that I could see LAC dropping as low as 65 cents on the handle portion of the chart pattern I saw playing out.  

I didn't pull the number out of my rear end, it was based on the chart. Between March and July of 2015 LAC had hovered over and under that 65 cent mark, before and as the left hand side of the cup started forming.  Ultimately it was a guess based on what I perceived to be a support level.

Before I give myself too much credit though I have to admit to some impatience.  On April 27th, the same day I expressed the opinion that I could see LAC dropping as low as 65 cents, on that day I picked up another 1,000 shares at 75 cents.  The reason?  Simple, I wanted to increase my holdings a little and I was afraid of news or something coming out that would send the PPS much higher before I got a chance to add.

But I also put a limit order in at 66 cents on that same Friday Apr 27th, that was set to expire on Friday May 6th.  During the trading week of May 2nd to 6th I was going to be busy and unable to watch the trading during market hours, and if my 65 cent prediction came true I wanted to be able to add at close to that price.  

It was an order for 2,000 shares at 66 because I don't ever expect to get the bottom of a bounce. And on Monday May 2, it filled.  When I saw that LAC had traded as low as 66 cents Monday evening I checked to see if I'd gotten my fill, and was somewhat surprised to see that I had.

Good, but far from perfect.  Obviously I should have gone for the whole 3,000 at .66....then again, maybe I wouldn't have gotten the full 3,000 filled at 66 cents, I shall never know.  As it stands my average cost was 69 cents plus brokerage fees,  With LAC now trading up around 88 cents that's a gain of over 25% so I'm not gonna complain.  

Given my opinion of LAC's chart, I very much like the chances of it climbing north of $1.00 CDN. 

Please note though, with respect to my comments on LAC, this is a highly speculative investment and its not suitable for everyone obviously.  Not everyone has the same tolerance for risk, and investment objectives can vary widely.  

Getting back to the central theme of this post, timing the perfect entry, good luck.  The way I see things the board is tilted, and the  direction of the tilt does not favor the retail player.  With that being said forewarned is forearmed.

Good luck.

Lithium Americas resumes up trend, handle forming....

I last wrote about Lithium Americas on May 6th, taking note of its inclusion in the only Lithium ETF that I'm aware of, the Global X Lithium ETF.  Previous to that I put up a post about the chart on April 27th, speculating that I thought the PPS could fall back to 65 cents if the cup and handle pattern I was seeing played out.  

• April 27th Blog Posting:  Cup and Handle Forming
• May 6th Blog Posting:     LAC added to Global X Lithium ETF

On April 27th the PPS closed at 79 cents and on May 6th the close was 70 cents.  The lowest its traded between April 27th 2016 and the present is 66 cents, so if this upward move continues I won't have been far off with my 65 cent pull back call.  On Friday May 20th, 2016 the PPS closed at 88 cents for a 33% climb of that recent 66 cent low.

Here's the chart:  

If this pattern does indeed continue in the manner I'm thinking it will, (no guarantees though) then we should be seeing a closing price above the recent 94 cent close of April 19th when the pull back started and signalled the potential for a handle forming.  If that happens, then I envision LAC breaking out to a new and higher trading range north of a dollar.

Not everyone is a fan of technical analysis, or TA for short...I know there are lots of fans when T&A stands for something else though :-) 

Some view charts and TA as little more than guessing, like horoscopes and palm reading.  Those who hold this view will typically say something like "when good news comes out stocks go up, when its bad stocks go down".  And to a degree there is merit in that point of view, because often it does work out that way,

The whole idea behind TA is that it may provide an indication of future direction.  We've all heard the old saw about "buy the rumor, sell the news".  For my own part I view all the currently available fundamental data as already being priced into a stock.  And I also consider it likely that before news comes out, or before a major announcement is made, that there may be some parties in the know trying to profit from it by establishing or adding to a position.  I view investors of this kind as being what is often called "the smart money crowd".

What I look at is price volume movements, where a stock climbs on volume heavier as compared to when the price pulls back.  For me a climb of 2 cents on volume of 10 million shares trading is more significant than a drop of 10 cents on volume of just 1 million.  

***One big qualification.  I consider TA to be most reliable when a company is putting out little or no news, and is not engaging in paid promotion.***  

One of the tools available to this smart money crowd, especially when its a stock trading for less than a dollar, is short selling.  I mentioned in an earlier posting the importance I place on keeping an eye on short selling:  Why Short Interest Matters

If I see 10, 20...30% of the issued shares shorted, that to me is a warning flag.  Bears are not stupid, and if there have been some large bets placed on a stock falling, then I take that as a potential omen, a sign that bad things may be coming in the future.

In the case of Lithium Americas the short interest is nothing approaching even 10%, in fact as of May 15th 2016 its less and one single percentage point, 0.54 % to be precise.  

However the raw number is notable, its just over 1.6 million.  Considering the daily average volumes LAC is trading lately, that's a drop in the bucket.  I think its very possible that there may be those looking to accumulate LAC, and that short selling may have been used to squelch the upward move in the PPS in an effort to inject some fear and uncertainty into retail holders.  You have probably heard it referred to as shaking the tree.

Friday May 20th saw a big jump in trading with over 11 million shares trading hands when all the secondary exchanges are included, (8.8 million on the main TSX).  That jump may have been caused by Lithium America's inclusion in a Bloomberg article about SQM which references the deal they struck with LAC for 50% of their Argentinian project.  BLOOMBERG ARTICLE

If you're looking for an active forum for LAC then your best bet is Stockhouse where I post with the name ledrog.  There's a lot of speculation about SQM potentially buying out LAC.  While such a deal would not surprise me, I don't know if there's anything to it beyond idle retail banter and/or hope.

A note on LAC and any stock that I write about.  Lithium Americas is a highly speculative investment, and it is not a suitable investment for everyone.  Verify all the information I have provided, I endeavor to ensure that everything I post is accurate, but I rely on outside sources for a lot of the information I provide here and I cannot warrant that everything is accurate, and also I could make a mistake.

If you have a comment, or if  you simply wish to point out something I may have gotten wrong...please do, the comment field is open.  All I ask is for a respectful tone and no profanity or advertising.  

Peace

Lithium Americas (LAC.TO / LACDF) Added to Global X Lithium ETF (LIT)

As far as I am aware there is only one ETF (Exchange Traded Fund) that focuses solely on Lithium, and that is the Global X Lithium ETF which trades under the symbol LIT on the NYSE.

If you go to the Fund's website you'll see a listing of the Top 10 Holdings, and up to the right of the list you will see an arrow and the words: FULL HOLDINGS (.CSV) all in orange lettering.

Click on that and it provides a full list in word format, here is the list cut and pasted:

"Global X Lithium ETF",,,,
"Fund Holdings Data as of 05/05/2016",,,,
"% of Net Assets",Name,"Market Price ($)","Shares Held","Market Value ($)"
21.619,"FMC CORP",47.54,"259,956.00","12,358,308.24"
9.674,"QUIMICA Y MINERA CHIL-SP",21.06,"262,591.00","5,530,166.46"
5.955,"OROCOBRE LTD",2.53,"1,344,297.00","3,404,198.75"
5.430,"ALBEMARLE CORP",67.10,"46,258.00","3,103,911.80"
4.490,"SAMSUNG SDI CO LTD",100.05,"25,651.00","2,566,433.21"
4.131,"LG CHEM LTD",249.91,"9,450.00","2,361,681.39"
4.123,"GALAXY RESOURCES LTD",0.28,"8,528,272.00","2,357,125.73"
4.052,"GS YUASA CORP",4.08,"567,894.00","2,316,100.12"
3.945,"SIMPLO TECHNOLOGY CO LTD",3.38,"666,700.00","2,255,356.98"
3.942,"TESLA MOTORS INC",211.53,"10,652.00","2,253,217.56"
3.928,"JOHNSON CONTROLS INC",40.50,"55,441.00","2,245,360.50"
3.878,"BYD COMPANY (144A)",5.66,"392,000.00","2,216,814.70"
3.771,"SAFT GROUPE SA",30.61,"70,432.00","2,155,762.11"
3.520,"FDG ELECTRIC VEHICLES LTD",0.06,"34,711,800.00","2,012,187.53"
3.319,"PANASONIC CORP",8.58,"221,220.00","1,897,348.50"
3.276,"DYNAPACK INTERNATIONAL TE",1.49,"1,256,300.00","1,872,670.61"
2.153,"ADVANCED LITHIUM ELECTROC",1.06,"1,158,129.00","1,230,796.06"
1.989,"LITHIUM AMERICAS CORP",0.54,"2,118,067.00","1,136,885.44" *
1.494,"VITZROCELL CO LTD",9.66,"88,408.00","853,906.10"
1.492,"CHANGS ASCENDING ENTERPRI",2.29,"373,151.00","853,074.67"
0.883,"BLUE SOLUTIONS",16.23,"31,108.00","504,973.52"
0.845,"BACANORA MINERALS LTD",1.15,"418,958.00","482,789.44"
0.789,"COSLIGHT TECHNOLOGY INTL",0.34,"1,326,973.00","451,278.68"
0.696,"ULTRALIFE CORP",4.09,"97,272.00","397,842.48"
0.384,"CHINA BAK BATTERY INC",2.59,"84,722.00","219,429.98"
0.146,CASH,1.00,"83,930.11","83,728.96"

(* My Bolding)

Lithium America's isn't the only Jr. Lithium Miner included in the fund,  there are two others.

• Bacanora trades in Canada on the Venture Exchange under the symbol BCN.V
• Orocobre trades on Canada's big board TSX under the symbol ORL.TO

And of course the so called "Big 3" of  FMC, SQM and Albemarle Corp are included. They however are not Juniors, but actual producers. Lithium though is just a minor component of each one's overall mining and business operations.

There are so many Jr. Miners out there right now vying for attention in the Lithium space, and I for one am convinced that a lot of them will never develop anything and that they're just looking to ride the wave the way so many penny stock companies tried to cash in on all the Medical Marijuana hype a couple years back.

With LAC.TO, BCN,V and ORL.TO being included in this ETF it suggests to me a level of validation from the market for these three.  

One final note on the overall fund itself LIT.  After languishing for much of the past 2 years it has finally started to climb off the bottom it hit around February of this year.  But even with that positive movement the growth pales in comparison to what's been achieved with some Jr. Lithium mining stocks.  A big reason for that of course is the companies that make up most of the fund....companies, even mining companies, for which Lithium is just one small component of their overall business operations.

I will keep an eye on this fund to see if they add more Jrs, but for now as an owner of Lithium America's shares its good to see that this fund bought in.

Disclosure, as a shareholder in LAC my views and opinions are not without bias.  Also please verify all information provided.  I would never knowingly post something false, however I can make mistakes so verify all information.  

David Deak, LAC's new CTO working at Tesla?

Lithium Americas put out news this morning (Monday May 2, 2016) about a new executive hire.

(LINK TO NEWS)

The PR is to announce the appointment of David Deak.  Here's what it says in part:

• VANCOUVER, BRITISH COLUMBIA--(Marketwired - May 2, 2016) - Lithium Americas Corp. (the "Company" or "LAC") (LAC.TO)(LACDF) is pleased to announce that Dr. David S. Deak has joined the Company as Chief Technical Officer ("CTO") and Senior Vice President, and President of its subsidiary Lithium Nevada Corp. ("LNC"). Dr. Deak holds a D.Phil. in Materials Science from Oxford University and is well-known within the lithium and battery materials industry. He has diverse experience, predominantly in technology development and commercial roles. Most recently, he led strategic development projects focused on battery manufacturing and supply chain activities, including lithium supply.

When a "material event" takes place public companies are required to notify the markets, and a key executive hire certainly qualifies in my opinion.  But sometimes what isn't said is just as important (or maybe more important) than what is said.

If you research David Deak you'll find a LinkedIn profile detailing an individual by that name who has "DPhil Materials Science from Oxford", same same as referenced in Lithium America's PR.  And with the same educational background as mentioned in today's news.  I'm convinced, for obvious reasons, that the David Deak referenced in Lithium Americas news release, that he is the same David Deak attached to this LinkedIn profile:

• Senior Development Engineer

Tesla Motors Inc.

2014 – Present (2 years)Palo Alto CA

Managing strategic and technical projects focused on:
- battery manufacturing, including cell component engineering and development
- analysis of upstream processing of raw materials, from mine to Gigafactory

- supply chain development, from supplier engagement and selection, to contract negotiations 

https://www.linkedin.com/in/david-deak-2900521

But what the PR doesn't say is that David Deak lists Tesla as his current employer on LinkedIn.

Avoidthebag has tweeted David Deak asking him if he is now working at both Tesla and Lithium Americas.  I will post a comment if he tweets back.

Please read the disclaimer at the bottom of this page.  I am a shareholder in LAC, and in fact added to my position during trading today (Monday May 2, 2016), so my opinions are not without bias.

Lithium Americas - Cup and Handle Forming (LAC.TO or LACDF)

Even if you know next to nothing about Technical Analysis and chart patterns you've probably heard of a cup and handle pattern before.  While no chart pattern or technical indicator is right 100% of the time, certain patterns like the cup and handle become well known because of their overall success in predicting price moves.

Here is the chart for LAC.TO

The left hand side of the cup formed after the spike up around $1 in May of 2015, with the drop and rise forming first the base of the cup and then the right hand side.  After getting up around $1.00 again this April the PPS has slid all the way back to in around 75 cents as I write this.

This pull back I believe will prove to be the handle of the cup and handle pattern.  If the pattern plays out as I am expecting I think we will see a breakout similar to what happened in late March when the PPS pulled back down in and around 45 cents before running up to $1 in April.  I also consider it very possible that LAC could trade as low as 65 cents if this pattern plays out.

Do note that I have a long position in LAC.TO and so my opinion is not without bias.  There is something called ''confirmation bias'' where someone loses perspective because of a preconceived idea or opinion.  Also note that my opinion can change, and I may sell some or all of my shares if my opinion changes from bullish to bearish.

The most likely reason that my bullish opinion could change on Lithium Americas is if I were to find them paying promotional outfits with volumes going to 20+ million on a daily basis.

Comments are always welcomed, all I ask is that rules of common courtesy and respect be followed.

DISCLAIMER

This is strictly an opinion piece, and my opinion could very well turn out to be wrong. This blog post is intended strictly for informational and entertainment purposes and should not be used as a basis for any investment decisions. Avoidthebag.com is not a registered broker or investment adviser.  Investing in stocks or options involves significant risks. For investment advice you should seek the input of a professional investment adviser.

Stock Promotion - How much is too much? (Nemaska Lithium)

Over a year ago I had a brain storm, with so many devices powered by Lithium batteries, to say nothing of Tesla and the emerging market for EVs, investing in companies engaged in Lithium Mining seemed a pretty good bet.

But last year there wasn't the explosion in interest that I've witnessed over the past several weeks as the buzz about Lithium stocks has gone mainstream.  Last year I researched Lithium Mining companies, discovering that if I wanted to invest in a "pure" Lithium play, that I would have to pick from a number of Juniors.

There were, (and are) major players.  Established mining companies that are dominating the Lithium market place right now.  SQM, FMC and Albemarle are the three major incumbents, but for each one Lithium is but one small component of their mining operations.  While demand and prices for Li are growing exponentially, the impact on these major players is small because of how widely diversified they are.

Wanting to invest in a company that has Lithium first, second and last as their business focus, I had to opt for a Junior Miner, that is to say a company that wasn't yet operational.  After doing my research I settled on two, Lithium Americas and Nemaska, and I think I made good choices.  I blogged about it last year on Seeking Alpha:

http://seekingalpha.com/instablog/15663412-joe_retail/3902216-lithium-americas-and-nemaska-charts-and-insider-buying-have-me-bullish

Based on my research I liked the potential for these two to bring their plans to fruition, to graduate from the status of junior miner to profitable businesses.  Neither one has yet achieved that status, however they are both getting very close.

Lithium Americas has entered into a 50/50 Joint Venture with the aforementioned SQM on the development of their Argentinian mine which was just announced at the end of March 2016.

And Nemaska has garnered significant grant and investments from various levels of government in Canada, and is expected to announce a pre-paid off take agreement with a battery manufacturer within the coming days or weeks.

Both have been impressive in executing their business plans in my opinion.  But something happened recently with Nemaska which led me to sell my shares, that something was promotion.

I want to be perfectly clear on one point here though.  Promotion with development stage companies is to be expected.  Companies go to the public markets in search of capital in order to fund a business plan because, being in the development stage, they are not making money.  Having Investor Relationship firms promote a company is essential in raising the profile of a company in order to attract investors.  Companies can then sell shares to raise money and thus execute on their business plans.

But its a matter of degree in my view.

Nemaska has garnered non-repayable grant money from Canada's federal government from a fund for sustainable development, they've also secured investment from the government of Quebec as well as from the local Cree nation near the proposed mine site.  They are touting themselves as well financed, in fact Dundee Capital Market's analyst David Talbot said in a research paper dated December 15th 2015 that:

"Nemaska is fully funded through to Q2/17, the beginning of construction of the Phase 2 plant and mine site".

I won't bother going into my views on analysts that work for firms which provide Investment Banking services to public companies, needless to say there's already been mountains of digital ink spilled about the potential for conflicts of interest.

I will merely speculate on Nemaska's need to pay promotional outfits for exposure when they're already well financed and also receiving a great deal of exposure from mainstream media outlets. My own opinion is that they don't need to be doing much.

They have analyst coverage from Dundee, Stormcrow and Cormark.  In French language media they've been the subject of numerous stories via such outlets as TVA and Radio Canada and CEO Guy Bourassa has been interviewed on Canada's BNN (Business News Network).

Why would they need more than that?

Well, whether Nemaska needs to do more or not, the fact is they have been doing more and will be doing more going forward.

Back on March 3rd Nemaska's CEO was "interviewed" by "The Ellis Martin Report".  I put interviewed in brackets because, as per the disclosure on this outfit's website:

• The Ellis Martin Report is a radio news magazine broadcasted during market hours in 50 US cities and worldwide via the VoiceAmerica Business Channel.featuring potentially undervalued small-cap or microcap companies from a variety of industry sectors trading on a number of North American and foreign exchanges. Some analyst segments are sponsored and all company interviews and written reports have been compensated by the client companies featured. Invest at your own risk, as you may lose your investment.

I consider it a tad disingenuous to refer to something as an "interview" when the company being profiled paid to be there.  I always chuckle when I hear exchanges like:

Interviewer:  "Thanks so much for taking the time to talk with us today".

CEO:            "It was my pleasure, thank you for the opportunity".

To me that's like thanking an escort for taking the time to visit your hotel room.  For those who wish to hear the interview, it was uploaded to You Tube on March 4th, 2016:

They've also been promoted with "interviews" by InvestorIntel.  On top of paying these outfits, Nemaska is a sponsor for an upcoming Lithium Supply and Markets Conference in Las Vegas in May of this year.

Has all this promotion had an effect?  You bet it has, just look at a 3 month chart.  NMX on the TSX Venture exchange has gone from in and around 40 cents in February to its current levels in the $1 to $1.20 range.

Now, there are those who might suggest that my motivation for writing this blog piece is that....having sold out of Nemaska Lithium, that I am merely looking to justify my decision and to "bash" Nemaska so that I don't end up kicking myself if it were to climb substantially from its current PPS around $1.15

You might be surprised to know that I consider it very possible, and in point of fact likely, that NMX will trade higher.  "SO WHY DID YOU SELL THEN"!?!?!  I hear you asking.....

First I will explain why I consider it possible and in fact likely that NMX will trade higher.  Dilution is coming, in fact it already happened with more on the way.  As of March 31st of 2016 issued shares were listed at 207,475,385 and as of April 15th 2016 that number grew to 216,823,915 as per stockwatch.com for an increase of over 9,000,000 shares.

And if you go to Canadian Insider you will see that options in the millions have been granted this month alone.  (Canadian Insider Nemaska).

A market requires buyers and sellers, that is obvious.  And when its retail investors doing the buying because of something they heard on a paid interview or because of what some analyst has written, nothing in my opinion gets them more excited than seeing the PPS for a stock they're watching climbing.  "This must be good, look at the price...it keeps going higher, I better get in".

As for why I sold, take note of the Title for this blog.  Avoid the bag.  Nemaska is still a speculative investment, they are not projected to have a fully operating mine until sometime in 2018, and between now and then lots can happen, including the selling of a lot more shares.  I did very well with it, and if I left some money on the table by selling too soon, that's okay.  I believe it was JP Morgan who answered the question:  "How did you get so rich"?  With the answer, "I always got out too soon".

I'm still invested in Lithium America's and will explain why with my next blog posting.  For those who are looking at LAC and want a spoiler about what I'm going to write, I am expecting to see support for that stock firming up around the 65 to 70 cent area CDN based on my opinion of the emerging chart pattern.

DISCLAIMER

This is strictly an opinion piece, and my opinion could very well turn out to be wrong. This blog post is intended strictly for informational and entertainment purposes and should not be used as a basis for any investment decisions. Avoidthebag.com is not a registered broker or investment adviser.  Investing in stocks or options involves significant risks. For investment advice you should seek the input of a professional investment adviser.