Chinese investment driving Resverlogix's rise?

Shares of Resverlogix (RVX.TO and RVXCF) have been on the move, making a nice climb off recent lows.  After closing at $1.30 on October 31st 2017, it seems the Halloween ghosts and goblins scared the bears away and as of this writing shares are trading over $1.50 for a gain of more than 15% in just the past month.

What's behind it?

Investment from China may be driving some of the interest.  Shenzhen Hepalink is investing $87 million CDN into the company, which takes them to a 43% stake of this Calgary Biotech engaged in the exciting field of Epigenetics.and BET Inhibition.

Resverlogix's lead compound is Apabetalone, and it is currently in a Phase III clinical trial called BETonMACE which is aimed at proving that Apabetalone in combination with Statins will reduce the time to Major Adverse Cardiac Events versus treatment with Statins alone for treatment of patients with Diabetes Mellitus.

$87 million might sound like a lot, even in Canadian funds, but for the founders of Shenzhen Hepalink it probably isn't a huge sum.  Not after that company went public back in 2010, which made Li Li and Li Tan the richest couple in China at the time.  

http://www.chinabiotoday.com/articles/20100505_1

Shenzhen Hepalink is reported to be the world's largest producer of Heparin, a blood thinner.  

And Shenzhen Hepalink isn't the only big player with a stake in Resverlogix.  Eastern Capital, the investment arm of billionaire Kenneth Dart is also a major holder, along with NGN Capital and the company's CEO Donald McCaffrey.  

In Canada Resverlogix trades on the TSX with the symbol RVX.  In the United States shares trade OTC with the symbol RVXCF.  There may be a lot more upside for RVX yet.  In a recent report analyst David Kideckel of Beacon Securities set a 12 month target price of $8.55 CDN. 

Coverage Initiated on 'One of the Most Undervalued Biotech Companies in Canada

Disclosure, I am a shareholder so view my opinions in that light and verify all information.  Please read the disclaiming statement at the very bottom of this blog site.

Resverlogix - The importance of image and branding

I just had a conversation on Friday afternoon with Resverlogix's CEO Donald McCaffrey.  I was not seeking to garner any insight into future developments, rather our conversation focused primarily on events of the past seven to eight months.  I called to express my concern about the company's communications and about projecting a positive image to the market. 

My opinion on the prospects for lead compound Apabetalone are incredibly positive.  The company is more than two years into a phase III clinical trial called BETonMACE that is seeking to prove that Apabetalone administered along with Statins (Crestor/Lipitor) will positively impact the time to a Major Adverse Cardiac Event (MACE) for patients suffering from Diabetes Mellitus.  

The trial has already received five positive recommendations from the independent Data Safety Monitoring Board (DSMB) to continue with no modifications while noting no safety or efficacy concerns.

That is fantastic news, and in of itself is reason for me to be very bullish.  There are also trials planned for patients with both Chronic Kidney Disease (CKD) and Fabry's.  Apabetalone could also have application for people suffering from a wide array of conditions including Alzheimer's, Thrombosis and a number of other diseases with arterial components.  The potential here is mind blowing in my view. 

Suffice to say, I'm a bull, but not a happy bull. 

The reason for my unhappiness is a number of communication blunders over the past several months.  I'm not going to go over the issues, I already blogged about it back in October when the PPS had shown surprising strength in spite of those blunders.  For those who missed it here's the link to that post.

RVX.TO climbs 24% in one week despite "Fear Uncertainty and Doubt" or FUD for short

I spoke to the company's VP of Investor Relations about those issues and I was confident that going forward they would be resolved.  It was my sincere hope that there would be no further missteps and that when the company engaged the market that it would be in a positive way that would enhance the brand, not tarnish it.

Then on November 23rd the company announced via their Twitter feed that they had launched their new website.  Obviously like other shareholders and prospective investors, I checked it out. 

https://www.resverlogix.com/

To be perfectly clear, I personally would never base an investment decision on a corporate website.  I expect a company to have a website of course, but beyond that I don't care.  With that being said I did like the new look, I see it as much cleaner and easier to navigate than their old site which I considered "too busy". 

But my head just about exploded when I saw that in the upper right hand corner they had a link to a Facebook page for the company, a link that has thankfully been removed.  Why was it removed?  This is the page on FaceBook that was linked up to the new website:

https://www.facebook.com/pages/Resverlogix/1413266938896371

When I saw that I almost immediately sent an email to the company's IR represenatives, and I didn't pull any punches.  Here is an edited version of what I wrote: 

 I noticed the new website and wanted to let you know I think it looks very clean, sharp and professional....well done.

One suggestion however, (I am a pain, I know).  

Up in the right hand corner there's a link to the company's Facebook page.  But as you're probably aware, nobody is updating the Facebook page, I've seen home businesses with nice Facebook pages, while Resverlogix...it looks like you don't give a rat's posterior about it.  

And if that's the case, no worries.  But if you're going to go the time, energy and expense of sprucing up the corporate website, then why have a link to a Facebook page that makes the company look like its out of business?  

Then again, if your goal is to appear less than professional in the social media sphere, then I would have to say....mission accomplished.

I was not a happy camper obviously, and I subsequently asked when it would be possible to speak with the CEO.   That call, as I noted at the start, took place yesterday (Friday Dec 1st 2017) in the afternoon.  

Mr. McCaffrey assured me that he shares my concerns and that he will be addressing them.  He is aware that Facebook reportedly has over 2 billion active users.  I conveyed to him the view that some prospective investors, in researching the company, they may want to look into how the company presents itself on social media.

I realize I'm not providing much in the way of detail with respect to our  20 minute conversation.  There really isn't much worth sharing, aside from the fact that the CEO asserts that he is both aware of the problems and that he is not happy with the way the company has been communicating in the marketplace.

As a public company Resverlogix, like any other, has a brand and an image.  The company needs its corporate communication strategy and execution to match that of their leading edge science.  I equate it to a race car with an incredible engine that blows the competition away.  On the race track it doesn't matter if the car's paint job isn't the nicest, or if there is a chip in the windshield, what matter is performance on the oval.  

But the public markets aren't a NASCAR track.  And if a company doesn't present itself in a positive and professional manner, then they might not be able to raise the money needed to put gas in the tank and compete.  

The conversation ended with me wishing him a good weekend, with an exhortation to put his boot up the VP of IR's rear end, and I didn't use the words 'rear end' but the shorter three letter version.  

When to Take Profits - Why its so hard to sell....

It is Sunday again, a time when I like to reflect on the aspects of the public market that daze and amaze, that confound and astound, the fun and games that can thrill and send chills down the spines of retail investors. 

Life lessons can be hard, very hard.  Often its only through getting beaten up that we learn things. Battle scars, bumps and bruises can be great teachers.  Of course there are stubborn individuals who will never learn, who insist that their way of doing things must be right, even if the results are always bad.  "This time will be different", is a common mantra.  But its often said that only fools keep doing the same things over and over while expecting different results.  

I've never met anyone who's goal in the markets is to lose money, lots do of course, but the goal from the start is to make profits.   However lots of people lose money, tons of people losing tons of cash.  And too often these individuals had ample oppourtunity to put some green into their pockets, but they couldn't bring themselves to hit the sell button, it was too hard.

Well I'm going to tell you some things right now, and in my opinion these are things you're not likely to read anywhere else.  No industry player is going to share what I am about to share, not with some retail schmuck hoping to make a buck in the public markets.

Here it is.

At times when a stock has made significant gains, when investors have big "paper profits" but no capital gains, this is when the market will often employ all its devices and tricks to convince retail investors that sellers are getting screwed, that they're being swindled out of their precious shares.  And this is never more true than with highly speculative stocks for poorly managed companies that are bleeding cash.

Read that last paragraph again, please....

What am I talking about?  What are these devices....these "tricks".  There are far too many, but I can certainly give some examples.  Here are three of my favorites....

The after hours drop on small volume.  

You've bought a stock, 5,000 shares at $2 and now its trading at $10.  That means you've made a 500% return, but only if you sell.  And you're thinking about it, but then you see a 50 share trade after hours or pre-market that drops the PPS to $8.50.  "What the hell"?!?!?  You're incredulous.   

At $10 your 5,000 shares were worth $50,000 but at $8.50 they're only worth $42,500....$7,500 just disappeared.  "The bastids are screwing with it and trying to scare out the stupid, well I'm not stupid....I'm gonna hold tight, hell I might just buy some more"!!!

Beware that Ice Berg!!!  

That $2 stock you bought that's now trading at $10....you still decide that maybe it might be time to take some of those shares and turn them into cash.  You go to execute a trade and you see 5,000 lots bidding at $9.95 but on the ask side there are only 5 lots on the offer at $10.  It looks like demand is massive and supply is limited.  

YOU'D HAVE TO BE CRAZY TO SELL NOW!!!  

Hell, with so much demand and supply so low you might decide to buy some more.  Watch out!!! 

Those 5 lots you're seeing on the ask, they might just be the tip of an iceberg.  

An Ice Berg Order allows a seller to have one portion of their sell order visible, and the other part hidden.  While there may just be 5 showing there could be another 10,000 as the hidden portion.   It looks like there's hardly anything available, when in fact there is tons.  Those 5,000 bid lots could also be a "bluff" placed by the big player who's also behind the massive hidden iceberg order. 

The Scoop

This is the best one in my opinion.  Maybe you still decide its time to take some cash off the table, despite what appears to be massive demand and limited supply, and regardless of that 50 share trade outside of regular market hours.  But you're not 100% sure so you decide to test the waters with a limit order, offering 2,500 of your 5,000 shares at $10.25.  You're not even sure the PPS will go that high, the order might not even fill.

BUT IT DOES....your 2,500 shares are gone, and your buying power now reflects the $25,625.00 you've just made from your trade.  That's over $20K in profits.  BUT WAIT!!!  The PPS is still under $10???  Shares are still being bought and sold at $9.95 and yet someone came and scooped up your 2,500 shares for $10.25 each.   You're dumbfounded, "SOMEONE REALLY WANTED MY SHARES".....it certainly would seem that way.  So much so that they went over the market price to buy them.

But it might just be the same player with those 10,000 lots hidden in an iceberg order who bought your shares, the same party with the big bluff bid. 10,000 lots of 100 shares each equals 1,000,000 shares on the offer side....your 2,500 shares (a piddly 25 lots) are peanuts.  And now you might just buy them back, even if your buying sends that $9.95 price over $10 and up to $10.10....You're still ahead, you sold them for $10.25. 

Think you won?  Think again.

After selling 2,500 shares for $10.25 you had $25,625 in cold hard cash.  We'll say you then bought them back at an aveage price of $10 costing you $25,000.  Instead of $25,625 you've got just $625 in your account.  And the PPS will probably climb some more, but having seen someone go "over market" to scoop up your shares, you're not going to sell them again, especially if there are things like analyst predictions of much higher prices coming.  Obviously those who are selling, they're not as smart as you.  They're taking cash, but you're know your shares are worth more than cash.  Maybe you'll sell some at $15?  

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

There's more of course, tons more in fact.  But that's the way it is, and in point of fact I would argue that's the way it has to be. Its a zero sum game, with every trade that takes place one party gets cash and the other gets shares.  You can't have your cake and eat it too, and you can't have your shares and the money they're trading at both at the same time.  Life is a pain.

Why does it have to be this way?  Because this is real life, and real life is about winners and losers, there's no "everyone gets a trophy" in the public markets.  This is a trillion dollar industry.  There are brokerage firms, media outlets, analysts, promoters, and of course the public companies themselves, many of which are using shares as capital to fund operations and pay salaries.  

If everyone wanted to buy at the same time, where would the shares come from?  Or if  everyone decided it was time to unload, there'd be nobody handing over cash.  Imagine a football game with both teams lined up on the same side of the ball at the same time, both wanting to play offence or defence with no opposition.  It wouldn't work.  

In the market game the big players have a multitude of ways to convince retailers to buy high and sell low so that they can do the opposite.  A retail investor can win, but its damn hard and most I would argue will fail.  

But I know retail will keep trying, and now hopefully some are better armed so they'll know what's going on.

Beacon Securities research on Resverlogix - 12 month target price $8.55 CDN

At the end of my most recent article, about BET Inhibitors, I noted that Beacon Securities had published a research report on Resverlogix.  But I didn't provide a link. The reason is because, quite simply, there isn't one.  But I can share the report regardless, to find out how keep reading.

If you go to Beacon's site you can see that there is a Research Report dated November 15th entitled:  "Initiating Coverage: Resverlogix Corp. (RVX-T) The New Doctor Is In.  First Perscription Is A Full Dose of Resverlogix: C$8.55".

Go ahead and check it out:  

https://beaconsecurities.ca/institutional-equity/research/archive/research-resverlogix-corp/

If you go to Beacon's site linked above and click on the report you'll be taken to a sign-in page requesting a User ID and Password.  You have to be an approved user if you want to access it.  As Mork would say, "Shazbot".  Beacon Securities no longer caters to retail customers, they jettisoned that part of their business back in 2015 to focus in on institutional clients.  You can read about that at the following link:  

http://www.investmentexecutive.com/-/beacon-securities-to-divest-its-retail-operations-next-week

And that's a shame because the author of the report has quite the background.  Its not often you get research by someone who holds both a PHD and an MBA.  The author's name is Dr. David M. Kideckel, and according to his Linked-In page he only just joined Beacon this past September, having come from Alexion Pharmaceuticals.  

I imagine I might have some reader's who would really like to read that report.  Especially given that RVX just climbed 23% this past week.  On top of that the website StockWatch shows investment house number #87, which is Beacon, as having bought 35,100 shares this week according to my calculations.  That is the first time I've seen Beacon show up at all as a buyer.  All the buying took place Thursday and Friday. 

I have to wonder.  Is this just the start?

Alright, there is a way to read the report.  Its a bit convoluted, but pretty simple.  An investor forum called Agoracom.com has a user by the name of "noretreat".  I don't know how he/she was able to do this, but it works.  The post this user put up includes a snippet, and a hyperlink that somehow allows readers to download the report.  

https://agoracom.com/ir/Resverlogix/forums/discussion/topics/700775-the-prescription/messages/2177321#message

Just go to that message board posting and click on the words "CLICK HERE TO VIEW FULL REPORT", its in blue lettering.  I've viewed it several times.  And if you wouldn't mind leaving a comment and sharing your impressions it would be much appreciated.  

BET Inhibitors - The next big thing in Biotech? (RVX.TO / RVXCF)

Why it pays to get in early

In investing circles its sometimes called the "first mover" or "early adoption" advantage.  Being ahead of the curve can pay off big.  Its worked for me a few times, I wrote about some lithium miners both here and on Seeking Alpha years ago.  And I've had success in the energy storage market space as well.

In Biotech CAR-T was all the rage for a time with companies like Kite Pharmceutical and Juno Theraputics attaining multi billion dollar valuations.  Kite was bought out for $12 Billion by Gilead Sciences just recently.  Even Ziopharm, a late comer to the CAR-T party spiked big.  Early buyers watched ZIOP's share price climb from down around $3 in late 2014 to up around $15 in early 2015, although it has crashed hard and is back in the $4 to $5 area now.

The take away is really quite simple.  Most investors don't have the fortitude and foresight to buy until there's excitment.  Many prefer to wait for big volumes and a spiking share price.  Some need to hear the talking heads making buy reccomendations.  There are those who genuinely believe buying high is less risky than buying low.  

And once the party starts the herd is more than happy to come in and pay inflated prices, convinced they've caught lightening in a bottle.  Lots of retail players don't care if they're buying into a stock or a sector that has already seen huge gains. They buy when industry "experts" say a a stock is a "MUST HAVE". 

Of course getting in late can be costly, think of the poor Ziopharm investors who paid nearly $15 per share back in 2015.  Those who have held tight need the PPS to go up around 300% just to break even.

Will BET Inhibitors be hot hot hot?

Do BET Inhibitors and the companies developing them have that kind of potential?  Could firms in this space see the same multi-billion dollar valuations that some CAR-T developers saw?

I believe so.  In fact I think it could be even bigger than the CAR-T space.  And as the only company with a compound in a Phase III trial I believe Resverlogix (RVX.TO / RVXCF) could have blockbuster potential in a variety of indications.

Okay....I hear some saying.  What the frick is a BET Inhibitor???

Firstly the B in BET stands for Bromodomain.  Everyone knows what "domain" means, well Bromodomain refers to an approximately 110 protein "domain" that recognizes acetylated lysine residues.  I can almost picture the confused looks on some reader's faces.  "The acetylated lysine residues"???  For many it probably makes as much sense as "Mersey Dotes and Doesy Dotes and Little Lambsy Divey".

What we're talking about here is Epigenetics which is much easier to understand.

Everyone knows what their Genes are, X and Y chromosones and all that stuff.  Think of it in terms of a computer, Genetics (the DNA) represent the hardware of the computer.  Epi-Genetics represents the software, basically turning things off and on.  Epi is Latin and it means above, so Epi-Genetics is above the Genetic level and involves what are called:  Readers, Writers and Erasers.

Now picture being able to read genes and then to modify their properties so as to eliminate disease causing conditions.  If you can wrap your head around that concept then you have a layman's understanding of EpiGenetics and BET Inhibitors.  

I'm not going to get into heavy duty science because its beyond my realm, I understand it like I understood CAR-T....the basics.  But I didn't understand much about mining either when I was buying Nemaska Lithium at 15 cents.  

Are there Big Pharma Players involved?

What I see with BET Inhibitors is massive potential, and I'm not the only one.  Those like myself with only an undergraduate or high school education in science might not entirely grasp the full picture.  But others like researchers at Big Pharma companies such as Roche, GlaxoSmithKline (GSK) and Bristol-Myers Squibb (BMY) do.  BET Inhibitors are catching on big.    

GSK is conducting a Phase I clinical trial for I-BET762

https://www.ncbi.nlm.nih.gov/pubmed/24107192

Roche has RO6870810 also in Phase I:

https://clinicaltrials.gov/ct2/show/NCT03068351

I'll leave readers interested in doing further research on where Big Pharma players are at in developing their BET Inhibitor pipelines to their own devices.  There is simply too much out there to cover.  But what you will find is that the major players are in the early stages, pre-clinical and Phase one.  

Is Resverlogix ahead of the pack?

As is often the case, its a smaller more nimble development stage company that has the lead.  That would be Resverlogix, based in Calgary Alberta Canada and San Francisco.  Resverlogix is developing RVX-208 which is the first BET Inhibitor to be named, its called Apabetalone.  Apabetalone isn't just in Phase I or II, it is in phase III with a clincal trail called BETonMACE.  

https://clinicaltrials.gov/ct2/show/NCT02586155?term=apabetalone&rank=5

This is an event based trial that has been running for two years and is seeking to demonstrate that Apabetalone administered with Statins will reduce the incidence of Major Adverse Cardiac Events, referred to as MACE, versus treatment with Statins alone.  

Already the trial has received 5 positives reccomendations from its independent Data Safety Monitoring Board (DSMB).  The most recent coming on November 1, 2017.  

https://globenewswire.com/news-release/2017/11/01/1172169/0/en/Resverlogix-Announces-Fifth-Positive-Recommendation-From-Data-Safety-Monitoring-Board-For-Phase-3-Study-of-Apabetalone.html

That PR notes that the DSMB, after reviewing the data, noted no safety or efficacy concerns. 

This trial is being conducted on individuals suffering from Diabetes Mellitus with a subset of patients also suffering from Chronic Kidney Disease or CKD for short.  Those familiar with Diabetes and CKD know that the risk of  Major Adverse Cardiac Events, like heart attacks and strokes, is incredibly high.

But there is more.  I said that Apabetalone has blockbuster potential in a variety of indications, and that means more than just Diabetes and CKD.  There's a trial planned for patients with Fabry disease, an orphan indication.  

https://clinicaltrials.gov/ct2/show/NCT03228940?term=apabetalone&rank=2

Even Pfizer has taken note of Apabetalone's potential to treat a rare disease called Friedreich's Ataxia which causes progressive damage to the nervous system:  

https://friedreichsataxianews.com/2017/05/25/pfizer-seeks-patent-covering-friedreichs-ataxia-therapy-resverlogixs-has-already-developed/

On top of all that there's potential for Alzheimers, Thrombosis, and other orphan indications.  I don't think "blockbuster potential" is overstating things at all.  In fact if Apabetalone is successful in treating all the indications that show promise, then the term miracle drug might be more fitting.

Are there any near term catalysts to look forward to?

As of this writing Resverlogix is trading at (in this writer's opinion) the incredibly low Market Capitalization of just over $155 million CDN, that's less than $125 million USD.  And there are a number of near term developments which could have a hugely positive impact in raising that valuation.  

The biggest near term potential catalyst in my view would be finalization of an $87 million CDN investment by Chinese based Pharmaceutical company Shenzhen Hepalink.  That deal was announced on October 13th, and requires regulatory approval.  

China is hot again.  Biotech watchers probably saw the explosion of Acasti Pharma this week when they announced a non-binding term sheet with an unnamed Chinese Pharaceutical company.   Cynics might view a non binding agreement with an unnamed company and roll their eyes.  But after that news came out the PPS for ACST jumped from $1.25 the previous day to $3.10 by the closing bell.  

If a stock like ACST can jump like that on a deal that might not even come to fruition, with a company that isn't even named, I can only imagine what could happen with news of Shenzhen Hepalink's investment in Resverlogix being finalized.

Then there's is the Futility Analysis (FA) for the BETonMACE trial which could come out any time now.  A positive FA could attract serious attention, not just from investors, but possibly from major Pharmaceutical companies as well.

There are risks involed

I will point out the fact that there are obviously risk factors here, and I will encourage readers to go over the disclaimer infomation at the bottom of this site.  I am a shareholder and my opinions should be viewed in that light, I eat my own cooking in other words.

Obviously if there were no risks and Resverlogix was 100% assured to have success with Apabetalone, then the market cap wouldn't be sitting where it is.  Shares of RVX.TO have been trading around the $1.30 since June of this year with a couple of short lived spikes thrown in.  

I do believe the PPS could be on the cusp of another move, one that is bigger than anything previously seen.  Independent investment dealer Beacon Securities, which caters to institutional clients, just published a report on Resverlogix with a 12 month PPS target of $8.55 CDN, a report that discloses no payment from the company.  

Comments are always welcome, I do appreciate feedback.  I only ask that comments not include any profanity or attacks, any that do will not be posted.

CREG - A case of blatant manipulation?

Trading in shares of China Recycled Energy Corp cooled off a bit from Thursday and Fridays frentic action.  Of course volume of over 6 million is still eye-popping for a company with only 8.3 million shares reported as outstanding.  But its signficantly lower than the 25+ million that traded each of the previous two sessions last week.

If you're reading this miserable and pathetic little blog in hopes of finding some fundamental justification for shares of CREG to climb substantially from the most recent closing price of $5.36, then you're going to be disappointed.  Its not that I think China Recycled Energy Corp is a bad investment based on anything fundamental, its just that I don't think the fundamentals matter one iota at this juncture.  

Fundamentals don't matter???  That's what I hear some saying.  Nope, not with this stock, not right now as I see things.  What matters in my opinion is who owns shares, and who is short shares.  Its the old golden rule.  Not the "do unto others" rule you find in The Bible, but the more cynical: "He who has the gold makes the rules".  

In my opinion the surge in buying that took CREG by storm, it wasn't supposed to happen.  The company didn't put out a bullish press release, there were no promoters hyping this as a winning play, and no analysts were touting CREG to their books.  None of that was going on as near as I can tell.  

What did happen is that news came out about China Energy Investment Corp signing an $83.7 Billion MOU for engergy projects in West Virgina.  Coupled with Donald Trump's visit to China and a reported $250 Billion in trade deals that were announced, and you had a perfect storm.  Investors poured into CREG and sent the PPS soaring from around $1.25 as recently as this past Wednesay, to as high as $9.39 this past Friday.

Instead of buying shares of China Energery Investment Corp, investors were buying into China Recycled Energy Corp.  So what were they buying?  A profitable Chinese company which provides roof top equipment for industrial plants like steel mills.  This equipment captures the heat and converts it into electricity.  That's the 100 mile up version of the business, for more in depth information I invite readers to do their own research.  

Why am I not going into greater depth?  In case you missed it, I don't believe the fundamentals here matter.  Well, perhaps one fundamental metric does come into play with CREG, and that would be share count.

In this writer's opinion retail players, both big and small, they stormed in and started demanding shares...putting in buy orders through their brokerages.  From whom are buyers purchasing shares?  Not from sellers directly, but from Market Maker Broker Dealers (MMs for short) engaged in making a market for shares of CREG.  

And that's the problem.  I believe buyers overwhelmed MMs and forced them to go short to fulfil the demand.  And because MMs are exempted from regulations designed to eliminate naked short selling....well I think there's a massive open and naked short position in CREG right now.  

I'm going to be a bit harsh here and suggest that those who don't understand the concept of short selling in general, and naked short selling in particular....that you really don't have any business playing around with stocks in the first place, that's my view.  

Regulation SHO requires that short sellers first make positive determination that the shares they're going short on, that they're actually available to be borrowed.  When short sellers are unable to locate the shares they sold short, its called a delivery failure.  A delivery failure means the short seller is naked, and its against the rules.  There is an exception however, and it involves...yes, you guess it, Market Maker Broker dealers.  Here's the cut and paste from SEC.GOV, just click to go directly to the site:

• Failures to deliver may result from either a short or a long sale. There may be legitimate reasons for a failure to deliver. For example, human or mechanical errors or processing delays can result from transferring securities in physical certificate rather than book-entry form, thus causing a failure to deliver on a long sale within the normal three-day settlement period. A fail may also result from “naked” short selling. For example, market makers who sell short thinly traded, illiquid stock in response to customer demand may encounter difficulty in obtaining securities when the time for delivery arrives.

• “Naked” short selling is not necessarily a violation of the federal securities laws or the Commission’s rules. Indeed, in certain circumstances, “naked” short selling contributes to market liquidity. For example, broker-dealers that make a market in a security[4] generally stand ready to buy and sell the security on a regular and continuous basis at a publicly quoted price, even when there are no other buyers or sellers. Thus, market makers must sell a security to a buyer even when there are temporary shortages of that security available in the market. This may occur, for example, if there is a sudden surge in buying interest in that security, or if few investors are selling the security at that time. Because it may take a market maker considerable time to purchase or arrange to borrow the security, a market maker engaged in bona fide market making, particularly in a fast-moving market, may need to sell the security short without having arranged to borrow shares. This is especially true for market makers in thinly traded, illiquid stocks as there may be few shares available to purchase or borrow at a given time.  (All emphasis is mine)

That's exactly what's happened with CREG as far as as I'm concerned.  I can envision MMs having a collective short position in the 10s of millions of shares....I imagine that there may very well be shops that by themselves alone are looking at 5 million shares or more they need to cover.  And that's in a company with only 8.3 million outstanding shares reported.  

How can they cover?  I would suggest that the chances would be zero if the PPS had kept running higher and higher.  No, in my view....they had to slam the brakes on, hard.  But wait I hear some saying:  "So what"???  These MMs compete with each other, so here's a chance for those houses that aren't short to screw the shops that are.  Not so fast.

Years ago the US Department of Justice uncovered a practice called "Moves on Request".  Call it professional courtesy if you will, or better still maybe 'honor among thieves'.  It works like this, a broker who is looking to manipulate a stock will ask his fellow MMs to change their bid/ask based on the direction he needs the price to move.  Up when he's long and down when he's short.  Other MMs comply because they know that they'll be in a similar situation at some point. 

Its a quid pro quo situation, and for those who's Latin isn't great "quid pro quo" basically means "you scratch my back I'll scratch yours".  Here's that related info from the DOJ:  

• First, the investigation uncovered numerous examples of what are often referred to as "moves on request." A "move on request" occurs when trader A calls trader B and asks him to change the price he is quoting for the purpose of affecting the market in that stock.(18) When B complies, his move will generate a misimpression that there is an additional buying or selling interest in the stock, from which A will possibly profit. Trader B benefits because A will return the favor when B wants to influence the market in a stock.

If you're checking social media and seeing confident claims that CREG is a pump and dump, or a scam or other such drivel, then you're probably reading the posts of someone attached to a brokerage house that has found itself massively short, that's my opinion.  

But...like it or lump it, that's the public markets.  There are garbage stocks out there with accumulated deficits of $100 million or more, that are only surviving because they keep printing more and more shares to meet expenses and to enrich company executives.  And these companies will have Market Captializations of $100 million or more.  But MMs are not short on those stocks, in fact they may have clients who are dumping.  CREG's market cap isn't even $50 million, and its profitable as per the most recently available filings.  

But again, fundamentals don't matter....its the Cynic's Golden Rule and the players who control the market are short on CREG bigly, so the trend is going to be down in my opinion.  I will hold out one bit of hope, and its for this reason that I still am holding some of the shares I'd bought before this big move.  That hope is an announcement of some kind of dividend payment, even if its just one single penny per share.  A $0.01 per share dividend would only cost $83,000 for 8.3 million shares.  Those caught short would have to pay the dividend on the shares they borrowed, whether those shares exist or not. 

Comments of course are welcome, but no profanity or attacks.  

China Recyling Energy Corp (CREG) - End of week explosion...

I wrote about CREG back in June of 2016 expressing the opinion that shares were undergoing "smart money accumulation". I called it a thesis, for lack of a better word.  It was written as CREG was trading close to the $1.00 mark after having enacted a 1:10 share consolidation to regain compliance with the rules of the Nasdaq exchange.

Is a reverse split ever a good thing? China Recycling Energy (CREG)

That was a while ago, and until Thursday and Friday of this week CREG was about as boring a stock as you could find.  Typical volumes were low, pathetically low.  Most days saw just a few thousand shares changing hands.  A day with volume of 100K could be considered huge.  But that's nothing compared to the 50+  million that traded during the last two days.  

So, why the sudden surge in interest?  Firstly I think its important to note that, as per the most recent corporate filing, there were only 8.3 million shares outstanding as of August 9th 2017.   That's right, just 8.3 million, which means that the volume of the past 2 days of trading exceeded the number of shares by a factor of more than 6.  

Also from that same filing total current assets came in at $83.3 million, which on a per share basis is 

a little over $10.  I'm not pointing that out as a suggestion for a possible price target however.  These numbers are from the 10Q filing for the period ending June 30th 2017, and we're now in November.  Its very possible, and likely in my opinion, that there have been substantial changes to the fundamental picture.  

Here's a link to that filing:  

http://secfilings.nasdaq.com/filingFrameset.asp?FilingID=12229141&RcvdDate=8/11/2017&CoName=CHINA%20RECYCLING%20ENERGY%20CORP&FormType=10-Q&View=html

That filing came out on August 11th, which means that the 3rd quarter 10Q should be coming out any day now.  However realize that the 3rd quarter ended on September 30th just passed, so information in the new filing will still be old, just not as old.   

If you're reading this miserable and pathetic little blog in hopes of finding a diffinitive reason for the sudden increase in trading, well you're going to be disappointed.  That's not to say I don't have an opinion, I do. I think it has a lot to do with the news of China Energy Investment Corp signing a Memorandum of Understanding to invest $83.7 billion for various projects in the state of West Virginia.  

Here's a link to that news:  

http://www.reuters.com/article/us-trump-asia-energy-west-virginia/china-energy-investment-signs-mou-for-83-7-billion-in-west-virginia-projects-idUSKBN1D90S9?il=0

To be clear, as far as I'm aware China Recycling Energy Corp which trades on the Nasdaq under the symbol CREG, I do not believe there is any connection with this publicly traded company and China Energy Investment Corp, none whatsoever.

I do however consider it likely that Wednesday's early morning news about Trump's visit to China and the $250+ billion in trade deals signed, that this was the spark which sent CREG on its wild ride.  Here's a link mentioning the trade deals in the context of President Trump's visit to China.

http://www.bnn.ca/trump-gives-china-great-credit-for-trade-advantage-leaves-with-us-250b-plus-in-deals-1.910448

If you were to search for publicly traded companies with the words China and Energy, then CREG would probably be top of the list.  And then.....in my opinion High Frequency Trading (HFT) takes over.  And with CREG having such a small float, and trading at an incredibly depressed level....its the perfect storm.   

I've already blogged on here about BOTs that monitor the POTUS Twitter account using algorithms to determine if a Tweet about a public company is positive or negative, and taking out a corresponding long or short position automatically.  Its all done in seconds, that's the world we're in now.  

We'll see what CREG reports when their filing comes out.  Regardless of the reasons this quiet and almost invisible little company now has a lot more people watching it. As PT Barnum famously said, "There's no such thing as bad advertising".  With the float being so small here the party might only just be getting started, we'll have to wait and see what the quarterly filing says. If the numbers are less than inspiring however, things might just start dropping off fast.  

It was with this realization that I sold a little over a quarter of my CREG shares on Wednesday.  I didn't get the top price, nowhere close, less than $6 in two trades.  We'll see what happens next week, no matter what happens though I will probably end up having some regrets.  If the PPS goes to $20 I'll wish I hadn't sold any, and if it falls back to $1 or $2 I'll be wishing I sold them all.

Bottom line though, and something I constantly remind readers of....Nobody ever goes broke from taking profits.

Happy Trading.