Emblem Corp - Short interest hits almost 500,000 (EMC.V / EMMBF)

EMC has only been trading for seven calendar days, and the updated figure for short interest is only current up to December 15th 2016, so it includes just four days of trading.  The number current to that date was 483,200 and now with three more days of trading in the books it may very well be higher, and in point of fact I expect that it is higher.  

Regular readers of this miserable and pathetic little blog (I think I might be up to 4 now) know I don't give fundamental data a lot of weight, figuring it to be already 'priced in' to a stock's valuation. The reason is because most fundamental data is typically weeks, and often months old. Short interest on the other hand is much more recent, in this case its only 3 days old.  

Short interest is the one fundamental metric I follow closely because it gets right to the nuts and bolts of the market.  A stock price is determined by the laws of supply and demand, and short sellers artificially increase the available supply by borrowing shares from shareholders and then re-selling them into the market.    

One point I wish to make abundantly clear, short selling is legitimate market activity and I don't view bears as evil or anything of that sort.  Market players can look at a stock and reach the conclusion that, in their opinion, the stock is overvalued.  Expecting the price to fall they can borrow shares from the brokerages of shareholders who have margin accounts and sell them.  The goal is to buy the shares back lower, thus pocketing the difference and booking a gain.  

Longs of course do the opposite, when an investor reaches the determination, in their opinion, that a stock has potential to rise in value, then he or she can purchase shares in the hopes of selling them at some later date for a higher price than what was paid.

Pretty basic stuff.

Naturally it comes down to how many shares are being bought versus how many are being made available for sale, that's what determines the direction of the share price.  And both bulls and bears have the ability to influence the market.  When bulls storm in and buy, if they overwhelm the amount of shares available, then the price rises.  Conversely if bears are making more shares available than buyers are looking to purchase, then the price falls.

Emblem started trading on December 12th, and while market commentators were expecting it to open around $1.50 to $2 per share, instead the level of buy side interest sent the PPS up as high as $3.98 that first day on volume of over 7.3 million shares trading.

Naturally some felt that valuation was inflated, and as should be expected some obviously decided to try and profit by going short.  In just 4 days of trading almost half a million shares were borrowed and sold into the market, and based on the trading its reasonable to expect that most (if not all) of the borrowed shares were sold for more than $3 per.

Now comes the fun part.

As things currently stand short players are sitting on paper gains.  The current PPS is $2.77 and if we assume (pulling a number out of my nether regions) that shorts sold at an average of $3.27 to keep the math easy and rounding up to 500,000 as the short figure....that's a paper gain of $250K.

Not too shabby.

But here's the rub.  In order to turn those paper gains into capital gains short sellers need share holders willing to sell for $2.77 in order for them to cover.  Its the same as a long buying 500,000 of a stock at $2.77 and watching it climb to $3.27.  The long in this case has a paper gain of $250K but he can only turn it into a capital gain if he is able to find buyers willing to pay the higher price.  

Isn't the market fun?

Bears have done well, on paper, but if buying back on the cover causes the PPS to climb its possible that paper gains could turn into paper losses.  Its the same as a long buying a stock at $2.77 and then trying to sell at $3.27, if that selling leads to too much supply and a falling PPS then paper gains could turn into losses.

The thing to understand is that stocks trade on sentiment.  This is important so I'm going to repeat it, stocks trade on sentiment.  A lot of novice retail investors think that there is some magical formula or slide rule to determine whether a stock is under or overvalued.  Good luck with that.  

A lot of investors looked at a company like Tesla and saw its shares trading for $30 or $40 in 2012 and thought it was grossly overvalued.  After all the company was new and had never made a dime in profit, Tesla was bleeding cash to the tune of hundreds of millions per year.  On top of that they were issuing SEC filings saying that their previous filings for earlier years could not be relied upon because of accounting errors.  

Sounds like a short sellers wet dream doesn't it?  Hundreds of millions in losses, dilution on top of dilution, accounting irregularities.  It would be hard to argue with someone presenting the bear case on Tesla back in 2012.  But those fundamental negatives were trumped by bullish sentiment and TSLA took off trading for $100, $200 almost $300 per share in subsequent years.  And now TSLA has finally started to report profits.  Will those profits be enough to sustain the current $200 or so PPS?   That's up to the market to decide, and the primary factor will be sentiment.

But let's get back to Emblem Corp.  Right now its worth $2.77 CDN.  Is that overvalued or undervalued?  

That will depend on market sentiment going forward.  I took out a small long position on the first day of trading, because I saw (and still see) the potential for EMC to attract a lot of buy side interest. I only invested about one third of the capital I had set aside for Emblem however, because I could see it going either way after its incredibly strong opening.  

So far it has moved down from that opening day euphoria, which isn't a shock, but I also saw the potential for increased buy side interest from media mentions and the OTCBB listing, but as of yet that hasn't panned out.  With that being said I am not shying away from my $7 target by April when the Government of Canada is set to announce how its proceeding with the legalization of weed in this country.

Some interesting news has come out as well recently, with the company now authorized to produce Cannabis oils.  Oils derived from Cannabis are said to have a number of positive health benefits, and are an ingredient in some new energy drinks.  I'm invested in one such company and have written about Rocky Mountain High Brand 'Hemp Infused' drinks on here a couple times after opening a position in RMHB at .031 cents USD on the OTCQB.

http://www.avoidthebag.com/2016/10/hemp-infused-beverages-intriguing-idea.html

I am very bullish on EMC as a long term investment, given the management team and the expanding market.  Short term though anything can happen.  If bears continue borrowing shares and selling them the PPS could continue dropping.  

For those concerned with their shares being loaned out there are some things you can do, although personally I don't think it matters much because in my opinion there will still be plenty of shares available in margin accounts.  But shares held in registered accounts for TFSAs and RSPs, those shares are not available to short players.  Additionally putting a sell order in means they can't be loaned out either, although that's something you need to keep an eye on if your intention is to hold for the long term as your PPS could be hit if the stock starts to climb.

Anyway that's enough for now.  Good luck and realize that because of my long position my views are obviously biased.  Verify all information, while I try to ensure the accuracy of what I share I can make no assurances, mistakes can happen.

Cheers

Ziopharm - Has Kirk lost his magic touch?

Its something you see all the time in professional sports, a player with a successful history hits the free agent market and gets a huge contract.  Teams sometimes overpay, and then get stuck with a grossly overpaid player who isn't performing.  Its a lousy situation but it happens, and the team that overpays is stuck, often unable to trade the player unless they're practically willing to give him away and pay a portion of his salary.

It happens in the stock market too.  Many Ziopharm investors were thrilled with the involvement of renowned biotech Guru RJ Kirk.  Here was a guy who had orchestrated some blockbuster deals with companies like Scios and New River.  Kirk was a big home run hitter in other words, and when Ziopharm announced it was partnering with the MD Anderson Cancer Centre the bidding on shares of ZIOP went through the roof.  

After trading down around $2 in 2014, the PPS climbed up near $15 in 2015 with the Anderson deal providing the wind in the sails.  Now of course ZIOP is down to somewhere around $6 to $7 and running out of cash with the prospect of more dilution within the next 12 months.  

RJ Kirk is also the Senior Marketing Director and CEO of Third Security, an investment firm he started in 1999.  In viewing the biotech and science centred holdings of Third Security its apparent Ziopharm isn't the only one that has not been performing as well as investors were probably hoping.

http://www.nasdaq.com/quotes/institutional-portfolio/third-security-llc-874451

1. XON up near $70 in 2015, now its trading under $30   
2. HALO up around $25 in 2015 now under $12
3. FCSC over $7 last year now less than $1
4. SYN briefly over $4 in 2015 now less than $1
5. OGEN same as SYN
6. HSGX started 2015 around $12 and is now under $2
7. TBIO got up to $3 and even $4 in 2015, now around 20 odd pennies.  

That's just a sampling of course.  It perhaps goes to show the wisdom of that oft repeated bromide about past performance being no guarantee of future success.  Its not just in pro sports that players lose their touch.  

But in fairness just because a number of stocks have under performed in 2016, that doesn't mean they can't turn it around in 2017 and beyond, in fact I'd expect at least one or two of those beaten down stocks listed above to rebound.  

Who knows, Ziopharm could be one of them.  In my opinion a lot will depend on their ability to raise money yet again, and if it involves diluting current shareholders, then to what degree.

Good luck

Peregrine Pharmaceuticals (PPHM) January effect candidate?

I've written before about investors falling in love with their stocks.  That doesn't just go for the winners, people fall in love with those that have lost them money too.

Nobody wins them all, I don't care how good you are.  Anyone who believes someone who says they never pick a losing stock, they probably believed Donald Trump's promises about locking up Hillary Clinton and draining the swamp.

Sometimes the loss is blamed on manipulation, but whatever the reason investors have often read all the SEC filings, every PR, all the Motley Fool and Seeking Alpha articles. Message boards have been scoured looking for that golden piece of bullish information that preaches to the converted longs.

But as the year comes to a close, sometimes you have to cut bait and let go, especially if you have gains with other stocks.  Capital losses have value because they can be used to offset gains that have been booked on other stocks.

Still, letting go is hard, and that's where the January effect comes in.

A lot of investors will hold on until late in the year, before finally hitting the sell button in December and booking the capital loss.  But that doesn't mean they stop paying attention to the stock they sold, its still watched closely.  And then after 30 days many will buy back in.  That 30 day period is important because buying back in after less than 30 days means you lose the capital loss for tax purposes.

The result of buyers coming back into a stock is frequently a bounce in the share price.  And sometimes it starts in late December as some who never held a position buy in looking to play the January effect with a beaten down stock.

Fundamentals aside stocks trade based on supply and demand more than anything else.  Obviously the best time to be buying any commodity is when demand is low, and the best time to be selling is when buyers are in abundance.  If many of those who sold for a tax loss storm back into a stock in January, that represents a good time to sell, at a time of heightened demand.

So what makes PPHM a good candidate for the January effect in my opinion?  Let's start with the a look at the chart:

The share price for PPHM cratered in late February 2016 with the announcement the company was halting it's phase III trial of Bavituximab, causing the PPS to fall from over $1.00 to 30 odd cents. For the remainder of the year the stock has been trading in and around 30 to 40 cents with some short lived spikes above 50 pennies.

Obviously anyone who'd bought shares before the trial halt would be sitting on a paper loss, and selling would allow investors to book capital losses to be used as an offset against capital gains.  But now the question is:  Why would anyone want to buy back in?

I see two reasons, the fist being Avid Bioservices, Peregrine's wholly owned subsidiary.  Their contract provider of bio-manufacturing services (as well as providing services for their own development stage drugs)  just reported 2nd quarter revenues of $23.4 million with a reported backlog of $73 million.  According to recent news, with Avid's continued revenue growth, overall profitability is targeted within the next 18 months.

http://finance.yahoo.com/news/peregrine-pharmaceuticals-reports-financial-results-210500133.html

And the second reason is also outlined in the above linked PR on the company's financial results. Their drug candidate Bavituximab, while it failed the futility analysis in the company's phase III trial, post hoc analysis of the results may lead to the company finding alternative targets and/or combinations.  

Finally I will bring up short interest, because I consider a critical point of research and DD.  Back in February, before announcing the phase III futility test failure, short interest was over 11.4 million.  As recently as June the number of shares borrowed and sold was still over 9.4 million.  Subsequent to June though the number of shorted shares dropped substantially with the most recent update showing 646,318 shares short current up to November 30th 2016.  

http://www.nasdaq.com/symbol/pphm/short-interest

Props to short players who booked some solid gains by selling high and buying back low on the cover.  Now with less than 1% of the float short as of the most recent update, I don't see much of a risk/reward play for short players.  Shorting a stock trading for 30 to 40 cents is fraught with risks, especially if the company achieves profitability and/or success with bavituximab.  

We shall see if PPHM does benefit from the January effect.  If it does, then the safest thing to do in my view is to book profits.  As I write in just about every entry on this blog, "nobody ever goes broke taking profits".  I do think there is a potential for PPHM to deliver over the longer term, but as with any stock, there are risks.  If PPHM does bounce in January and then keeps going, those who sold for the January effect could always cry into the money they made.

As always, not a recommendation, just my thoughts and opinions.  Comments are welcome, just no profanity please.  

Good luck

Worried about rising interest rates? Don't be.....

Interest rates affect everyone, whether you're a borrower or a saver.  For borrowers rising rates mean higher carrying costs on debt, for savers it means higher income on vehicles like savings accounts and GICs. 

But in terms of the stock markets there is quite often a disconnect, with retail investors bullish when rates go down and bearish when they rise.  There is some logic to that thinking, because when rates go up so do things like the cost of buying on margin.  And when rates go down, those using leverage to purchase stocks see those costs drop.

But rising rates should be cause for bullish excitement, while falling rates should spark concern.

Quite simply central banks raise rates when the longer term outlook for the economy as a whole is good, and they lower rates when there are fears of recession, or when a recession as already taken hold.  What good are cheap borrowing costs when there are less people working and less money circulating in the economy? Conversely, who cares if the cost of borrowing is more expensive if that means there will be more money circulating as employment levels rise along with those working getting increased wages.

For younger readers though, those who have come of age in the last 10 years or so, rising interest rates might come as something of a shock.  This was only the second rate increase in the past year, and it signals that we're coming out of the emergency low interest rate environment that was spawned by the Great Financial Crisis (GFC) in 2007/2008.  

There are a generation of borrowers who think a fixed mortgage rate of under 3% is normal.  When I sat down with my bank a couple years back to negotiate a mortgage I had a different term, "stupid cheap".  My wife was thinking of shaving a few tenths off by going variable, and maybe buying the rate down some.  But at well below 3% I was more than happy, being able to remember rates much higher, like 5, 6 and 7.....there were even crazier rates back in the early 90s, but I wasn't taking out mortgages back then.

Rising rates will cause some problems, there are some people who are addicted to cheap debt, and they're going to be in for some severe pain if the US Federal Reserve sticks to its guidance of another 3 rate increases next year.  

But for the overall economy in general, and stock markets in particular, this is a very good thing.  

Aurora Solar (ACU.V) explodes higher on LG Electronics news

Many commentators write about the importance of timing the market.  But sometimes its not so much about timing, but rather of "time in".  I first wrote about ACU.V back on July 18th of this year, just shy of five full months ago.  At that time ACU was trading around 15 cents:

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

In that posting I expressed a bullish opinion that was based on a near total absence of Promotion, News, and Hype.  On top of that I really liked the way the chart was setting up.  I saw a base pattern in the 14 to 15 cent range and had started a position at 15 cents and speculated that the stock might be undergoing smart money accumulation, that is to say big market players buying low while things were depressed and quiet.

Not long after I wrote that blog posting, the PPS fell to less than 10 cents, so much for timing.  I did take advantage of that drop and added the exact same dollar amount as I had bought at 15 cents, thus lowering my cost average to 12.5 cents, but at 9 or 10 cents I was still underwater.  

In Sept/Oct/Nov the PPS did recover, getting back up around 15 cents before settling in and around 13 pennies.  That is until December 13th when the company released news about an order from LG electronics.  

https://ca.finance.yahoo.com/news/aurora-solar-technologies-announces-volume-130000686.html

The two sentences of news contained in that release seems to have been the cause for an explosion in both the PPS as well as volumes.  ACU traded more than 8 million shares over the last two days and the PPS climbed from 13 to 19 cents after reaching an interday peak of 21.5 cents.  

Regular readers know my favorite saying, nobody has ever gone broke taking profits.  I myself sold 10% of my holdings today at 20 cents, 60% gains are nothing to sneeze at.  But I think there is potential for even more upside here.  With that being said, ACU has moved up in a fast and furious manner, so it would not be unreasonable to expect a pullback.

Do take note of the 50 and 200 day moving averages (simple), the 50 is taking dead aim at crossing over the 200, which is called a Golden Cross among devotees of Technical Analysis.  A Golden Cross can be seen as a potential harbinger of a clear sky break out to a new and higher trading range. Assuming ACU.V does break out even higher I think it is reasonable to expect resistance in the 30 to 35 cent range where the PPS traded for a long time over the past several years.

As noted in a blog posting I just did on short interest on December 5th just past, ACU.V only had 2,000 shares sold short current up to November 30th.  However back in August that number did shoot up over 100K, which in my opinion was quite likely an effort to "shake the tree".  For those unfamiliar, shaking the tree involves shorting a stock in an effort to shake free shares from overly nervous and price sensitive retail shareholders.

If it happened before it can happen again.

Do note my opinions are biased as I am a shareholder and ACU does represent a highly speculative stock, that was true at 10 cents, at 15 cents and is equally true at 19 or 20 cents.

Good luck

Will Emblem Corp follow Lithium X Energy's trajectory? (EMC.V)

What does a Junior Lithium mining company have to do with a producer of Medical Marijuana? 

Generally speaking, practically nothing.  But when it comes to comparing shares of LIX.V with shares of EMC.V I think the similarities will show up in the weeks and months ahead.  

In educational circles its called applied learning, taking knowledge acquired from one area and applying it to another.  In this case I'm taking the lesson of the surge in Lithium Stocks and applying it to the MMPR space.  Specifically I'm taking what I learned about the trading in LIX.V and postulating that it may very well serve as a guide about what to expect for trading in EMC.V.  

Lithium X started trading on November 30th 2015 and opened at 30 cents per share.  After forming a solid base around 40 cents and trading in that area until mid January the PPS took off.  By April of 2015, just 4 months after opening at 30 cents, the PPS was trading over $2.50

Oh to have a time machine eh!  Here's a chart that covers that first five and a half months of trading in LIX.V

I didn't jump into LIX.V because I thought the Lithium buzz was pretty much done.  I banked some very nice profits on Lithium stocks like Nemaska, Lithium Americas and even Durango, but I stayed away from LIX.V because at that time they looked, (to me) to be getting too much promotion and all the hype that goes along with it.  

Live and learn.  Investors loved the Lithium X story and in particular the history of their management team.  

The lithium buzz in general and the Lithium X story in particular, was too hard to resist and LIX.V took off.  Stocks, as I have often written here, are more about psychology than anything fundamental. If I could go back and invest in LIX.V for 40 cents I would, obviously.

But wait.  Maybe I do have a chance to do it over again.  But instead of with a Jr Lithium miner I can do it with a newly minted Medical Marijuana company, Emblem Corp, which just started trading under the symbol EMC.V

A big part of the reason Lithium X Energy took off in my opinion was because investor's liked the track record of their management team, which had (and has) a wealth of experience in the mining sector.  Executives whose histories include established and successful companies like Potash One and Albemarle obviously give a level of comfort. 

Emerald has a similar narrative with their executive team.

Notably John Stewart, who used to run Purdue Pharma, the privately held pharmaceutical giant best known for pain medications like OxyContin.  And Harvey Shapiro a former CEO of Dynacare Inc which was acquired by Laboratory Corp of America Holdings in 2002.

Like the Lithium buzz that sent many Jr Miners soaring with gains of several hundred percent and sometime over 1,000%, medical marijuana is equally hot right now.  And I believe that Emblem may very well be coming to the market at an incredibly opportune time, just as LIX.V did in November of 2015.  

In fact the timing may be even better.  Not only is the MMPR space hot right now, but the overall markets have been in full bull mode since the U.S. presidential election.

Shares of EMC.V were expected to open somewhere around $1.50 but when I finally was able to pull up a quote this morning the PPS was already up around $3.  And while I think that price is reasonable and has a lot of upside potential, with the hype surrounding MMPR in general and EMC.V in particular, I have decided to hold off in anticipation of some volatility.

Why do I think there's a lot more upside, even at $3+?

Sticking with Lithium X Energy as my point of comparison, I think Emblem can attract even more attention because of all the news around Marijuana right now.  Yes Lithium got some attention in the media, but nothing compared to all the stories coming out about legalization right now.  And I think Emblem's path to revenues and profitability could be much shorter. 

Lithium X Energy, over a year after going public, is still in the development stage, they haven't yet reached production.  In fact they still haven't published a feasibility study on their proposed mine in Argentina.  I'm not pointing that out to be negative, its merely a fact of the mining game, it takes years to bring a proposed mine to production, and many fail.  That hasn't stopped Lithium X from raising capital however as investors continue to believe in the company as evidenced by their market capitalization of roughly $130 million Canadian.

Emblem by contrast already has their license form Health Canada and was recently written about by Huffngton Post Canada:  

An Inside Look At One Of Canada's New Licensed Cannabis Producers

Add in the fact that the rules around legalization for recreational use are expected in Canada this spring and I believe there is a recipe here for what may turn out to be a perfect storm.  

I could write reams and reams more on the reasons for my bullish opinion and why I'm looking to take out a long position, but I'll leave readers to do their own research and further due diligence if they're sufficiently intrigued.  

I will note that Emblem hit my radar via a promotional email, the same type of promotion that caused me to stay away from Lithium X Energy.  Again, live and learn.  Some promotion with development stage companies is to be expected of course, and I will be watching to see if Emblem "jumps the shark" in my estimation by going overboard.

Despite my bullish opinion please understand there are always risks, and as someone looking at taking out a long position my opinions are obviously biased. Small and microcap companies fall into that high risk category and are not suitable vehicles for everyone, there is every possibility that investors could lose some or all of the money they put at risk.  I strongly advise consulting with an investment professional to determine if EMC.V is suitable considering both investment objectives and tolerance for risk.

Comments are always welcome and good luck.

More Sunday Thoughts....Pay it forward

As my multitude of regular readers know, (yes, that's both of you) on Sunday's I sometimes like to write about those things that daze and amaze, astound and confound, the games that both amuse and confuse retail players in the equity markets.

On occasion I also write about my Christian faith and my Church.  You can relax, I'm not an evangelical, nor am I one who takes every word of the Bible literally.  I don't knock on doors and I don't give my testimony on street corners.  

My Christian faith is pretty simple, and it centres on the Golden Rule that pretty much all religions proclaim in one form or another:  "Do unto others as you would have them do unto you".  Its a rule that isn't even exclusive to those of faith, many atheists and agnostics follow this maxim as well.

The market however does not ascribe to this principle.  In the capital markets the axiom is more one of: "Do unto others BEFORE they do unto you".   The market is a zero sum game.  In simple terms that means you have to decide between one of two options, cash or shares.  When a trade takes place one party gets shares and the other gets money, you can't have both.  

And with so many hyped up plays out there, stocks trading on promise and hot air, there will be a lot of people who end up heavy on shares and light on cash.  My goal with this blog is to help retail investors better understand the game and to make better decisions so that they can win more often. But winning in the market game means others are losing.  

I wrote recently about a marijuana stock that was being pumped and promoted, one that went from about 2 cents to up around 36 pennies.  Its now trading somewhere around 15, and in my, (not always so) humble opinion it will eventually find its way back to 2 cents because it is fundamentally worthless with no financial foundation to support any valuation.  

If you manage to make money on a penny stock, (or any stock for that matter) I simply ask you to consider paying some of the money you made forward.  My church is pretty awesome, we sponsor refugee families and migrant workers who come to our area.  We have a free community dinner once a week, support the local food bank and the Church has its own clothing depot.  

This blog earns some money, not a lot but some.  The ads on here have generated some cash which finds its way to my Church, as do some of my trading profits.  When I am winning with my trades I know that there are others who are buying into the forward looking pumps.  And I also know that many will never sell.  Overcome with greed many players are too afraid of leaving profits on the table, and then too proud to admit a mistake and take a loss.

Buy yourself some Karma and consider paying some of it forward.  And keep an eye here on Monday, I'll be writing about a new Marijuana IPO, Emblem Corp.  

Happy Sunday everyone, and Merry Christmas.