My blogcation has now become an indefinite halt of regular blogging. Simply put, my blogging is not currently offering enough rewards (monetary and psychological) to compensate for the effort and hassle. I will continue to post interesting links on Twitter (though rarely) and I will occasionally post new articles here. I am not disappearing completely from the internet; I will continue to be the administrator/moderator of Tim Sykes’ chatroom.
I will continue to upload most of my trades to Profit.ly, which I update weekly or bi-weekly (from the beginning on this blog I have said that I will not share my trades in my ‘super-secret’ trading strategy and I do not upload those trades to Profit.ly; excepting for that strategy and a new pseudo-arbitrage strategy I have been using since December, I upload all of my new trades).
If you comment on this post, you can save time and effort by simply posting the number of one of the three most likely categories of comments:
(1) I love you! Please don’t go!
(2) You owe me more free content! You are a jerk for not giving me what I want for free!
(3) You are stupid, ugly, and your trading sucks. The world will be a better place without you polluting the blogosphere. I think so little of you that I compulsively read your blog and feel compelled to comment on it.
Disclosure: I get paid for moderating Sykes’ chatroom based on how many people are in it during trading hours. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.
One of the problems with a lot of pump and dumps is that there are often not any shares to short when the stock is about to fall. However, there are often shares available to short days before, when the pump is just starting. For example, there were at least 5,000 shares per day of TNGS available to short at Interactive Brokers for many days prior to its big drop day. However, from January 19th (the day before its big drop) to January 21st (the 2nd big drop day) there were no shares available to short at Interactive Brokers. Below is a chart from Interactive brokers showing the share availability to short of TNGS.
So what can a short seller do? The simple answer is to boxthe shares (this is also referred to as simply boxing). Boxing originated as a tax technique designed to delay the realization of capital gains while eliminating the risk of holding a stock. So for example an investor who was long 1,000 shares of AAPL since 1990 would then go short against the box, selling short an equal number of shares either in the same account (some brokers let you do this) or in another account, if he believed the stock was temporarily overvalued. This eliminated the risk of holding AAPL stock and did not require realizing a huge taxable capital gain. This tax loophole was closed in 1997. Now the only reason to box shares is to lock up short shares.
What I do on many pumps (the ones I know I will want to short sell) is I short shares at Interactive Brokers while going long an equal number of shares at SpeedTrader. Sometimes I will already be long the stock as I do sometimes try to make money by buying pumps (but shorting is much easier). Other times I will scalp to open the boxed position (for example I might scalp short and then buy long in my other account to box, rather than covering). By boxing the shares I accomplish two things: (1) I can now short whenever I want by selling my long shares, even long after no new shares are available to short, and (2) I can get better fills when I do decide to short an OTC stock because Speedtrader has more direct-routing options than does IB.
So how did I implement this for pump TNGS? I shorted 3000 shares at Interactive Brokers at an average price of $2.51 on 1/14 (that I later covered at $2.096 on 1/20 and 1/21). The same day, I bought 3000 shares in my Speedtrader account (I think I actually ended up buying for poor scalps multiple times, which explains why my average buy price is so much higher than my average short, and why Profit.ly has the position size at 4900 shares).
To get net short on 1/19 when TNGS was looking weak and I thought it might drop, I sold my long shares at Speedtrader, and I rebought them when TNGS held up (again, I had partial fills and some scalping so Profit.ly shows more than 3000 shares). On 1/20, soon after the open, TNGS looked weak and actually went red on the day. I shorted then by selling my long shares and I bought them back for a loss. When it went red again just a little bit later I believed it was time for the death drop and I sold my long shares a final time (2500 at $2.83 and 500 at $2.85). To cover, later that day and the next day, I covered my short shares at IB. I covered 2,000 shares on 1/20 at an average price of about $2.16; IB bought in 800 of my remaining shares at 2.05 the next morning, and I covered the last 200 shares into the 2nd down day morning panic at $1.64. Overall I netted $1913.21 from my trades on TNGS. Even considering the total capital I needed to make these trades (6,000 shares * a maximum price of $2.89 = $17,340), my percentage return was nice (11.0%).
There are of course downsides to boxing. It uses up capital (and if you aren’t careful you can generate a margin call in one account even though you are not losing money overall), generally requires multiple brokerage accounts, generates more commissions, and requires more planning than just shorting. That being said, as long as the net result is a profit on a stock that would not have been otherwise shortable when you wanted to short it, the end result makes the hassle worthwhile. The only risk to boxing is forced buy-ins of short positions. This actually happened to a couple traders I know who had boxed shares of TNGS in preparation for its big down day. One of those traders was forced by Interactive Brokers to cover his short shares right at the open on 1/20, just an hour before the stock dropped. However, being forced to cover part of a boxed position will only saddle a trader with the costs of commissions and slippage.
A note on the psychology of boxing: I have seen other traders refer to ‘making money’ on one side of a boxed position while ‘losing money’ on the other side. I do not think of it like that. If I am long the same number of shares I am short, I have no net position and no risk. I consider myself ‘flat’ and think about it as if I had no positions in the stock. I then consider myself to be shorting when I sell my long shares.
Disclosure: Short 40,000 shares of CWNR at Interactive Brokers and long 40,000 shares of CWNR at SpeedTrader. No positions in any other stocks mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.
All these were pumped by HotOTC or one or more of their other websites. All these were announced after the market close on the date listed.
Want more? Much more detailed research on different stock promoters and how their pump trades is coming, but it is too much work for me to give away for free. Details coming soon … I expect to have this new premium service running within a couple months.
6/2 – MCTH – I traded this profitably.
Ticker
Long/Short
Shares
Open Date
Price
Position
Close Date
Price
Profit ($)
Profit (%)
Pumper (if known)
MCTH
Short
26832
6/3/2010
$0.398
$10,669
6/3/2010
$0.388
$258.36
2.42%
HotOTC
Comment: was hotOTC pump, previously no volume; missed first 15 minutes of day when it opened at .45 and had good volume at .42 due to a dentist appointment; covered gradually with best bid (last 1200 shares I actually covered the next morning)
6/6 – EYSM
6/6 – SLTZ
6/7 – AMEL
6/9 (before market open) – CAEH (was also pumped by Beacon Equity and Wild Bill that day)
6/12 – IGNT
6/13 – DTRO
6/15 – GNZR
6/15 – RXAC
6/20 – ABHI
6/23 – INAR
6/24 (mid-day alert) – SNSR
6/27 – BSOM
6/30 – NUEC
Disclosure: No positions in any stocks mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.
All these were pumped by HotOTC or one or more of their other websites. All these were announced after the market close on the date listed.
4/29 – DTSL
5/2 – GRNH
5/5 – AMEL
5/6 – ECHD
5/11 – ROSV
5/12 – SILA
5/16 – AGCZ
5/19 – VIDA
5/23 – LMCO
5/26 – JEDM
5/31 – SRGL
Disclosure: Short 500 LMCO. No positions in any other stocks mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.
Below are my monthly profits (keep in mind this includes $6,234.16 in losses from my super-secret trading strategy, for which I do not report the trades on this blog; those losses all came in March and were it not for those losses I would have made $4,703.21 in March):
January
$9,938.76
February
$11,146.07
March
($1,578.95)
April
$17,548.72
May
$16,191.05
June
$4,123.12
I have become far more consistent compared to last year.This is primarily as a result of relying less on my super-secret trading strategy, which generated essentially zero net profits last year while giving me tons of volatility. (In 2008 and 2007 that strategy generated significant profits).
January
$27,740.09
February
$29,477.44
March
($21,774.65)
April
($50,199.34)
May
$60,484.79
June
$10,165.92
Unlike last year, most of my profits this year have come from trading OTC pump & dumps rather than listed stocks. I have netted $15,861.46 from my pump longs strategy (going long the pumps being something I have learned from InvestorsLive of the InvestorsUnderground stock chat, with a weighted average profit margin of 2.89% and a win rate of 53.71%. My revived long-term short strategy, which has been hampered by the psychological difficulty I have in holding long-term shorts after the disastrous forced buy-ins and resultant losses I suffered in mid-2008, generated $3,629.18 in profits with an average weighted profit margin of 6.80% and an 84.2% win rate. All but one of my 19 trades in this strategy were of AMEL (the other was ANTS).
For my TimAlerts-related strategy, $32,228.80 in profits have come from trading OTC stocks (almost exclusively short) while only $12,103.73 in profits have come from trading listed stocks. The total profit attributable to my own trades (mostly shorts of OTC stocks) was $28,733.40 with a 1.82% weighted average profit margin, while the profit attributable to me following TimAlerts was $16,382.83 with a weighted average profit margin of 1.43%. Contrary to popular belief, I have made relatively little money this year scalping TimAlerts, with my total profit attributable to that being $2,853.38 and an average profit margin of 0.92% (note that this is not a weighted average profit margin; I just averaged each trade’s profit margin).
Disclosure: No positions in any stocks mentioned in this post. I own many of Sykes’ DVDs and I am a lifetime subscriber to his TimAlerts trade alerts service and I have a subscription to his PennyStocking Silver service. I receive a commission for every DVD bought through my affiliate link to Sykes’ web store. I am also an affiliate (and customer) of InvestorsUnderground. To see more details on my relationship with Sykes and InvestorsUnderground, please see my terms of service, which is incorporated by reference into this post.
Note: This article will be updated as I read the documents I have uploaded. I wanted to make them freely available to the public as quickly as possible. For background in the meantime, I suggest reading David Baines’ articles (Part 1 & Part 2) on this in the Vancouver Sun.
Here is a brief excerpt from Baines’ article (part 1):
By this time, [David] Urquhart was long gone. In September 2008, just after the stock [of Mainland Resources] peaked, he resigned. The company said his departure was “not a result of any disagreement between the company or Mr. Urquhart pertaining to matters relating to the company’s operations, policies or practices.”
Maybe so, but there was serious disagreement over compensation. In a legal action filed in U.S. District Court in Nevada this week, Urquhart claims the company owes him hundreds of thousands of dollars in cash, shares and options.
The case number is A09-591695-B and I downloaded Urquhart’s complete filing from June 23rd 2010. Below are links to PDFs of the full complaint.
Disclosure: No positions in any stocks mentioned and no connections to anyone mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.
Disclosure: No links to the above message boards except that I do poste on the iHub DD Fraud Research board. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.
The Securities and Exchange Commission today filed a complaint against Blake Williams of Dallas, Texas, and registered representative Derek Lopez, of Torrance, California, and numerous entities that they controlled, alleging that they committed securities fraud by manipulating the markets of numerous microcap stocks from 2006 to 2008. The Commission alleges that the defendants sold stock in unregistered offerings and that their subsequent manipulation led to artificially high prices and volume, which allowed the defendants and others to sell their holdings for substantial gains. The complaint also alleges that Williams acted as an unregistered broker-dealer when he solicited purchases of stock and traded on behalf of investors who bought stock from him.
The Commission’s complaint alleges that Williams, using five entities that he controlled, and Lopez, using the entity Da Big Kahuna, LLC, engaged in a number of manipulative practices, including:
engaging in “bid support” by placing orders for shares at prices below the inside (highest) bid to absorb sell orders and create an artificial floor for the stocks;
trading in multiple accounts through multiple brokers to give the false impression that there was greater demand for the stocks than truly existed;
coordinating trading among a group of individuals for the purpose of maintaining stock prices; and
obtaining securities in unlawful, unregistered offerings and then selling the securities to investors and into the markets in similarly unregistered and unlawful transactions
Here are some details on which companies were affected, from the SEC’s legal complaint (pdf):
53. Williams and the Williams Entities participated in the manipulation of the stocks of at least a dozen issuers (Advanced Growing, Axium, Bluefire, Datascension, Interlink, Medirect Latino, National Automation, Packaged Home, Pet Ecology, Remote Surveillance, Riverdale, and Straight Up).
54. Lopez and Da Big Kahuna participated in the manipulation of at least eight stocks (Axium, Bluefire, Interlink, Packaged Home, Pet Ecology, Straight Up, National Automation, and Remote Surveillance).
55.
The defendants used a variety of methods to manipulate the markets for the targeted stocks including, “bid support,” controlling the float, coordinated trading, and trading in multiple accounts.
I find the details of how the alleged manipulation took place to be especially enlightening:
A. Bid Support
56. The defendants and others engaged in what they referred to as “bid support.” This conduct involved layering orders at or near the best bid and ask prices with the intent to stabilize or increase share prices.
57. The defendants placed buy orders for stock at prices immediately below the “inside,” or highest, bid price posted by the market makers. For example, if the highest bid posted by a market maker was $1.50, the defendants might place orders at $1.45, $1.40, and $1.35, often for small amounts of stock.
58. These orders had two purposes. First, the defendants intended to create an artificial floor price for the stock when there was increased selling in the market; the defendants expected that the supporting orders would absorb some of the sell orders so that the stock prices would not fall dramatically. Second, the defendants placed the orders through different brokerage firms so that market participants would see a substantial number of bids and conclude that there was greater demand for the stocks than truly existed.
B. Controlling the Float and Coordinating Trading
59. The overall manipulation strategy relied upon controlling the “float”—the total shares available for investors to trade for a particular stock. As part of the scheme to distribute shares in unregistered offerings, the defendants and others ensured that the majority of shares without restrictive legends were controlled by the group.
60. The defendants and other participants in the scheme controlled the float so that shares would not be “dumped” into the market indiscriminately while they were selling their shares into the market.
61. As described above, the individuals who bought shares from the Williams
Entities had their shares pooled for some initial period (typically 30 to 60 days) and Williams traded their shares during this lock-up period.
62. The defendants and others engaged in coordinated trading to deceive the markets and extract profits from artificially high stock prices. This was accomplished by, among other things, selling in times of increased volume and price and not selling in times of low prices and/or volume.
C. Trading in Multiple Accounts
63. The defendants traded through several different brokerage firms using multiple accounts. This practice gave the impression of market depth to those looking at the market on a “Level II” or “Level III” screen, which identifies the market makers that are originating bids. Additionally, trading spread over many brokerage firms might avoid “red flags” with brokerage houses if large amounts of stock were deposited via stock certificates, thus concealing the fraud.
64. Williams traded stock on behalf of the Williams Entities and in his own name through accounts at multiple brokerage firms. Williams often deposited shares across the numerous accounts to avoid scrutiny and purportedly to ease the “clearing process.”
65. For instance, in the case of Axium, Williams directed the transfer agent to issue stock certificates to TBeck Capital, Victoria Financial, Valek Investments, Warren Street, and himself. An email from another individual to Williams said, “distribute free trading stock to 3 brokerage firms. Remember that the small cert[ificate]s go out first. Don’t send Lampost [Brokerage] any Victoria shares since they think I am on too many accounts.” Valek Investments’ one million Axium shares were issued in twenty certificates of 50,000 shares each. As part of depositing these numerous certificates across all of the accounts, Williams told one of his brokers, “I thought I would deposit one 50,000 share cert[ificate] into each account to make sure y’all are comfortable before I drop the bigger ones in.”
66. Similarly, Lopez traded securities at both his employer and “away” from his employer (in accounts at other firms), and traded in both his own name and in the name of Da Big Kahuna. Lopez made efforts to hide his activities on behalf of Da Big Kahuna from his employer by not properly designating them as “related” accounts. Moreover, the accounts for Da Big Kahuna are listed in the name of one of Lopez’s relatives even though Lopez controlled the trading in those accounts.
Disclosure: No positions in any stocks mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.
Just one main trade today on ANTS and a small HAUP scalp. Mostly in the video I talk about trading research and development.
Daily profit: $1,452.00
BOT 1,000 ANTS false Stock 2.3500 USD SMART 09:56:19 5.00
BOT 1,000 ANTS false Stock 2.1900 USD SMART 10:06:41 5.00
Disclosure: No positions in any stocks mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.
See the video for my thoughts on the various brokers I use. See also my first impressions of Speedtrader and my review of SogoElite. [Edit 6/21/2011 — Subsequent to me posting this video Sogotrade has changed hands (Genesis Securities sold it to Wang) and the borrows for shorts are not good there anymore. I recommend against using Sogotrade.]
Disclosure: Short 2,000 ANTS and 5,000 HAUP. No positions in any other stocks mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.
