This question is as commonly asked as there is common stock traded. CEOs of microcap stocks think his or her stock is being shorted at some point in their public company experience.
I thought I would begin to answer this question and help both public companies CEOs and microcap stock investors determine if their stock is actually being shorted once and for all. Here are tell tale signs that may provide clues to the answer. Lets set the stage.
Firstly, the following good things are happening:
1. Company released good news and not bad news
2. Volume has increased along with liquidity
3. Shareholder calls are positive
4. New investor calls are being generated
5. Stock price is inching higher
6. Trading appears steady throughout the day
7. No abnormal trades are noticeable
8. Investment bankers are inquiring
9. Invitations to conferences are rising
10. All seems under control.
Then, noticeably or suddenly, things can begin to change:
1. More selling than buying begins to happen
2. Offers begin to lower and bids start to fade lower.
3. At first it just looks like momentum higher has slowed down or stopped from lack of news, or investors are tired, distracted, or maybe fully invested
4. Seems like buying is being met with selling, which seems unusual as selling is increasing into even good news.
5. Selling continues to outpace buying, indicating that there could be extraordinary events taking place and selling momentum has begun
6. Rumors start that somebody is shorting the stock, which could be the reason for unexplained pressure on stock price. These rumours can start anywhere at any time and most begin inside the boardroom. “Somebody is shorting MY stock” sound familiar?
7. Day after day the stock continues to go down regardless of positive news or lack of bad news just seems to have more volume than normal even in a small float stock confusing to most CEOs
8. Is the company raising money at a discount price to market? This is a signal to both longs and shorts that more stock is coming into the market at lower prices. If this is the case, expect selling from everywhere and anywhere – it’s only natural.
It’s at about this point in time that the calls to the CEO are increasing as shareholders are alarmed, or curiously wondering what’s going on. The increasing calls quickly become a distraction to the Company. The board is getting calls, investor relations is fielding onerous calls and management begins to circle the wagons. It starts like this: “someone must be shorting my stock”, soon becomes: “someone is shorting our stock.”
Now the cat is out of the bag and all the attention begins to focus on the short. Who’s shorting? How are they doing it? Why would anyone short a microcap stock? Who hates us?
What can I do about it? Or even; what do they know that we don’t know?
By now the CEO is ready to throw in the towel being hounded and pounded for answers. It may actually be that someone or some group got pissed off and attacked the stock using the available weapons in the arsenal like: Message board negative comments, Whispering of negative rumours, Planting of management doubt online anonymously, and/or other various seedy crap that shorts do. If it is shorts why are they driving the stock lower?
Because eventually, they must cover the short sales. The lower the covering price the more profit! From my experience shorts are usually smarter than the smartest long player and do tons of research – often times more research than the longs. They usually have cash especially if they have piled on a short. One of the outcomes of shorting a stock is cash from the sales. Shorts are long cash, not stocks. Shorts cost average down or up-selling into buying when and wherever they can. It is an incredible struggle to fight against the shorts, ask any CEO who’s gone through it.
But here’s a hypothetical:
Suppose the short is not really a short at all. If it’s not a short it could only be a long seller. Now the discussion is about to change dramatically. So who could that be? How does the CEO find out who the seller is? Why didn’t the seller show the CEO his intention? Is there a block for sale?
Finding out who the seller is way easier than determining who the shorter is. It is all up to the company to do the research and quite frankly I recommend every microcap CEO follow these instructions even before the question of who’s selling happens.
1. Contact DTC and order the weekly DTC sheets by Cusip Number including common and warrants. This gives you the stock positions as a total held in street name at custodians or clearing firms. Keep track of weekly changes in a spreadsheet.
2. Contact the transfer agent and make sure you are receiving information regarding changes in stock ownership via transfer or requests for delivery out or legend removal etc.
3. Order a NOBO list from a source like Broadridge. NOBO stands for Non-Objecting Beneficial Ownership and is the final piece of the puzzle. These shares are issued certificates to a person or company name listed as owner of the shares.
4. If the company has issued shares for services rendered in lieu of cash, skip all of the above because the company is responsible for creating the selling so don’t bother looking any further for short – just track the selling and one day it will be over. My advice, pay cash not restricted stock and never free trading stock – this includes free trading warrants or deeply discounted options for services. Cash is always less expensive than stock.
I know this is a lot to digest, but just remember this: the person inside or near inside the company yelling loudest about a short may very well be the seller who wants to get out at the highest possible price.
Welcome to the real world of microcap stock management. Good luck, at least you now have the tools to uncover the truth and how to find the answers to: Is someone shorting my stock?
Source Link stocknewsnow.com
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