The bull closed in the positive note but was battleworn. The weekly bar is now a “almost doji” with a long-shadow below. While a doji bar usually reflects an indecision by either bull or bear, a longer shadow below provide a tiny edge toward the bullish side.
But if you look at the weekly chart above, notice that the tail of this weekly doji bar bounced off the last year closing support. Thus, there is a high probability of a continued uptrend based on the statistically significance of a doji/spinning top being an early signal of a potential bottom formation if it is near a support.
I must say I didn’t expect the level of view count on my Thursday thought that included the “short” story. Seeing the interest, let me see if I can expand the story a bit more to keep your attention.
While the “short” story was based on a fable-like format with an unrealistic background, it does highlight the weaknesses of the short-sellers. Even in the real world, it is always very easy for short-sellers to “walk the price down” against the bids as long as they have the muscle and money to back up the play. Any stock that has reached price equilibrium from a steady number of buyers and sellers based on existing fundamental can become a target for short-sellers to “walk down the price.” An equilibrium usually means everyone who is interested in the stock already bought the stock based on its perception of fair-value. The only thing left is for new information from the company to trigger a “reaction” that could either create more demand or more supply for the stock.
In the absence of new information, the company is a sitting duck for anyone with a bankroll to “walk-the-price-down”. As in my “short” story, just because you can walk the price down doesn’t mean you can still cover at the bottom to lock in gain. By walking the price down, the short-sellers are taking a big gamble that the fundamental development of the company will turn sour. But in the world of biotech, the uncertainty of it all gives “zero” edge to the short-sellers unless they “know” beyond reasonable doubt that the company’s technology will not work. And because of this uncertainty, it is far more easier to walk-down-the-price and cause some heart-breaks for the weaker hands. On the other hands, while the uncertainty of the biotech world allows the short-sellers to “manipulate” the price action with their muscle, they are also subjected to the tsunami known as “short-squeeze”. Even before the short-squeeze, the short-sellers can also be “trapped” if there are no sellers offering to sell shares to them at lower price. Remember, the short-sellers walked (sold) the price down not the investors. Ask yourself who is behind the short-sellers to keep selling the shares at lower price so that short-sellers can cover? Like the stranger holding his short position at $30, the stock may continue to be priced at $30 when there are no major activity and the stranger trades around the $30 b/w his two trading accounts. As long as the stranger holds off on covering his short position, price will stay at $30. But the stranger knows that he is “screwed”.
Often times, the short-sellers may target on the fundamentals to justify their thesis on the shorting campaign.
- “Lack of fund” is the most popular,
- “More dilution is coming” is the close second.
- “It doesn’t work!” are also common
Because many biotech companies did indeed fail due to the #1 and #3 above, the short-sellers have in the hands the law of average. While #2 may not mean a failure, it is usually accompanied by a falling price after dilution. Key word here is “usually” as in “not always.”
By applying the law-of-average, the short-sellers can wreak havoc by scaring the “sh*t” out of the weak hands.
“OMG! The sky is falling!”
And often times, the short-sellers walked away with their kills and left the weak hands with dust on their faces.
“OMG! It goes back up without me!”
BUT there are going to be times when the short-sellers get it wrong. Like the stranger walking into the town, he is clueless about the particular stock. His previous “successful” shorting campaigns on thinly traded stock precluded him from doing the necessary research and due diligence on the particular company he is shorting. For all intent and purpose, the stranger created his own trap; like a soldier walking into a minefield thinking that he found a short-cut.
The short-sellers risk falling into the following traps:
- Misunderstanding the science and therefore underestimate the disruptive nature of the new science.
- Under-estimate the market size the new science can tap into
- Under-estimate the availability of funding behind the company
Needless to say, when the short-sellers get it wrong, they are pretty much in the same predicament as the stranger who walked the price down to $30.
The bottom line here is that just because the short-sellers have the muscle to walk the price down on a company that reached price equilibrium, it doesn’t always mean the short-sellers is “right”. If you believe the science in the biotech company has a good probability of success after doing your due diligence, ignore the “noises” created by the short-sellers and let them battle for the few sellers out there with the daytraders.
Btw, most weak hands are the ones who don’t do their due diligence but relying on others’ recommendations and “tips”.
There there, by now, you know that I’ve strong conviction in $AMRN, $DMRC $AKAO, $ONCY, $BIOC, and $ARTH after my own due diligence. Regardless of whether I’m right or wrong in the future about my stocks, the short-sellers will no doubt continue to do whatever they want. All I can say is, “watch out for the traps!”.
This Friday, my port gained back another knot:
$AKAO, after a faulty drop on Wednesday, continued onward after the Thursday come-back. Price is now at new short-term high since hitting bottom in mid-May. Guess I was “right” after all in my prediction that $AKAO wanted to go up!
From the weekly chart above, next resistance is $9.00.
$BIOC bounced on Friday which was good.
From the above weekly chart, I went ahead and drew a trendline from the Feb low to this week low ’cause I expected this week low to be the bottom. I believe the shorts are now smelling the trap and it would do them no good to throw good money after bad money. I can see the short-sellers banking on the “more dilution” thesis to help them get out of their own trap. But I believe that future dilution, if any, will happen at a time when $BIOC fundamental has grown to such level that a dilution will be a blessing instead of a curse. Just looked at $CLDX. After their secondary offering in early 2013 at around $7-$8; price only took a tumble for one day but continued onward to as high as $38+ by October 2013.
$AMRN had a neutral week. This stock is now a waiting game for the script # to increase after winning their 1st Amendment lawsuit to allow them to promote their Vascepa drug off-label to the population with 200-499 trig level.
As far as I’m concerned, Vascepa works ’cause I’ve been taking 4 grams per day for the last three years and I’ve never felt better!
$ONCY formed a weekly spinning top at the support.
Thus, I’m expecting some bounce next week.
$DMRC, while a down week, had a longer shadow below the body in its weekly bar.
I take that the support is holding well and price may continue to rise from here.
$ARTH obviously took a tumble due to delay in the human trial. I would like to think that the short-sellers and short-term traders made a BIG deal out of this delay and short the “h*ll” out of this stock. I would LOVE to see them cover when positive development come into light.
No, I’m not worried. I’m like the $100 shareholders who thought the stranger walking down the stock is clueless.
Thanks to $AKAO continued upward momentum and other positive closing, my port gained back another 2.1% for the day. YTD losses is now at 11%.
Main port: AMRN, DMRC, AKAO, ONCY, BIOC and 5.1% cash. Trading account: ARTH (up 9%)
My 2 cents.