How To Short Sell A Media-Sponsored Pump & Dump

I went into today thinking I wouldn’t trade cuz they were no ideal setups. But when $23,000-in-revenue-joke-of-a-company-TheStreet.com-pump-and-dump (EDEN) became a big 2-day runner, my market inefficiency sense kicked in and I immediately reserved 1,000 shares to short, just in case it might show signs of reversal. By 11am, it was up 40% on the day in the $2.60 range, and while there were some big buy blocks just below at $2.55 and $2.50, the sellers were persistent. This is what I call “a wall of sellers” and when stocks are up big already on little to no news with fading volume, this wall signals the end of any runup, at least usually.

Sure, sometimes the wall collapses and the stock surges, but since TheStreet.com’s article was factually inaccurate and it’d already proven three times over the past 2 days it couldn’t break $2.75, I figured it’d be better to be early than late as I’d just try to double up if it went higher.

When some sellers came in to try to take out the big 10k buy block at $2.55, I could stand aside no longer, shorting into that block and posting my findings HERE. Sometimes when a big buy block gets taken out, it signals an immediate panic, but even with my rather harsh article, that didn’t happen here. For an hour or so, it went slightly higher to $2.65, but I held, convinced my argument was sound. 3 hours later, the stock was only down to $2.30ish and buyers held strong—after all, my blog doesn’t have anywhere near the traction of TheStreet.com, so the truth doesn’t really matter…yet.  

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The Latest Reason To Choose Technical Analysis Over Fundamental Analysis

On Wednesday, it took me about 15 minutes to recognize and write about (VISN) breaking out to new highs, suggesting higher highs. And, last night, I spent a few minutes scanning through all my stock charts—not because I don’t care, but because I’ve been doing it for a decade so I know exactly what to look for—it’s easy…that’s why I mentioned RDTA in this morning’s pre-market post—it was a perfect perfect breakout, suggesting higher highs.  

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Why I Just Shorted Eden Bioscience Corp (EDEN): TheStreet.com’s Factually Inaccurate Pump And Dump!

As I mentioned in this post, this near 100% runup is entirely due to THIS laughable Thestreet.com article mentioning this failure of a company as a “below-the-radar company that produces Messenger, a highly effective and revolutionary agricultural product.”

I could easily rip the company apart for its $23,000 in revenue in their latest quarter down from $189,000 just a few quarters ago—wow, their product must be really great! Even funnier is their yearly results—revenue of $350k vs. $4 million a few years back. Or before this miraculous article, EDEN was a $3 million company that was forced to do a 1-3 reverse split just two months ago in order to stay listed on the Nasdaq

But I shorted 1,000 shares at $2.55–that’s all I could find, trust me, I wish I could borrow 50k–because I prefer to go to the heart of the matter, the fact that EDEN SOLD OFF THIS “REVOLUTIONARY” TECHNOLOGY AS IS DETAILED IN THEIR ANNUAL REPORT!

From that beautiful annual report, filed on March 28, 2008:

“On February 28, 2007, under the terms of the Asset Purchase Agreement, we sold our Harpin Protein Technology to PHC for $1,396,824 in cash, net of transaction costs incurred after January 1, 2007 totaling $103,176, a promissory note in the principal amount of $700,751 payable on December 31, 2007 and the assumption by PHC of certain of the liabilities relating to or arising out of our Harpin Protein Technology…”

That’s right, EDEN isn’t even in the home and garden business anymore, they’re just a licensee! Gotta quote some more of this fine work of literature  

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Hot Stocks: A Bunch Of Mediocre Wannabes aka Stocks Not Gone Wild

No ideal trade setups, just getting bored by a bunch of mediocre chicks

(GOOG) Great earnings, gotta respect the after-hours stock gains, optimistic people looking for an excuse…but be careful–$200 million in one-time currency gains—without it, wouldn’t be such a blowout…too pricey a stock to matter to TIM, but just be a little weary here.

(FEED) Just cuz I said this is a typical smallcap raising capital at inflated prices, doesn’t mean those inflated prices will deflate anytime soon. Classic finance idiots gotta learn to read—what are you guys a bunch of typically coked out Wall Street ANALysts ?—I also explained that whoever bought the $10 million at $16 now has a huuuuge incentive to pump the stock. It’s called a balanced blog post, deal with it suckas!

(MMTIF) Still watching this TRUE pump and dump, again doesn’t mean I’m gonna short it—pump and dumps can last much longer than anyone expects, as (MXFD) shorts have learned the hard way  

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Chart Of The Day: The Safe Way To Invest In Gold: Permanent Portfolio (PRPFX)

After a big runup and a scary but small drop off its highs, gold is just above January’s highs and right at the all-important 50-day moving average (moving averages are hugely important to big badass trend traders). Commodities should continue to break out, the dollar should remain weak—solid argument for higher prices, but then again, it’s come sooooo far already.

So, the question is how do you play it? Here’s my safe way to play gold: Permanent Portfolio (PRPFX)

Look at that stunning 7-year chart! It’s the top-rated hybrid fund over pretty much every time frame, which I’ve mentioned I’ve been invested in for a while now. Their asset mix—20% gold, 15% global real estate, 10% Swiss Francs, 5% silver and lots of other little stuff—and chart are so beautiful, I’ve allocated 15% of my net worth to it and within a few months, I’m up a solid 4%. Plenty of exposure to gold, just without all the risk of being so concentrated in it.

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In The Stock Market, Trust No One And No Company Cuz They’re All Sh@#!

Last night, to a clearly shocked stock market club of about 75 people at the University of Buffalo, that was the main gist of my speech. Not just because I was burned pretty damn badly on one of these microcraps in which I naively believed or because of the media idiots who pretend to be researchers not even because of all the manipulation. No, it’s because out of all the thousands of penny stocks, I’ve ever trade/researched, only a handful have ever remained in double digits for more than a few days/weeks! The truth is that all these companies are pretty close to failing so they’re desperate for attention / capital. And it’s that desperation from which you can profit because it makes everything real simple-like.

As those who’ve witnessed firsthand, I love speaking to big groups of people who for the most part have little to no stock market experience (if you wanna book me as a speaker, it’s $1,000 and travel expenses—just not worth my time for anything less since it screws up my trading and blogging).  

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The SmallCap Pump & Dump Capital Raising Game: AgFeed Industries Inc. (FEED)

What’s the ultimate goal of publicly-traded smallcap companies? They sell shares when their stock prices surge to raise the most capital possible. This morning, recent high-flyer Chinese pig-farmer (FEED) did just that, becoming the latest victor in the smallcap pump and dump capital raising game, raising a cool $10 million, selling shares at $16, less than 10% below their closing price of $17.40. What are they gonna do with this newfound capital—buy more pig farms of course!

You can look at this two ways—it’s great for the company that they could raise so much $ at such high prices—usually these financing deals are done at much bigger discounts, think 25%+. The capital gives them a shot at true business glory, even if the odds are still decidedly against them. Then again, it’s dilution below market prices—the rich get special deals—so this stock should open lower as poor people sell their shares—wondering how to buy stock 10% below market prices (hint: you either need to give the company a lot of $ or convince them you and your connections can and will pump up their stock price)

Don’t get me wrong, agri stocks are hot and this is a clear chart breakout so I have only two concerns:  

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Stock Chart Of the Day: VisionChina Media Inc (VISN) Breaking Out

Their corporate name pretty much says it all–this now $1 billion Chinese company who deals in digital media and advertising is breaking out to new highs today on typical 200,000-ish daily volume. Big-time revenue growth and surprising valuation–think 200%+ and a forward PE in the 20-25 range–added to the fact that people are looking for ways to play the upcoming Olympics and you’ve got some real potential here. Too gradual/uncertain for TIM, but you know it’s gonna interest guys who like buying breakouts like Lindzon

UPDATE: Bought 200 shares at $14.63, couldn’t resist such a perfect breakout, kept my position small to give me the patience to hold out for $1-2 of probable upside

UPDATE 2: Doubled up at $14.27, total cost is now $14.45, stock didn’t uptrend into the close like I, along with seemingly many others, expected.Good news is it held the breakout levels and there’s a reasonably strong chance at a morning spike, especially given the probable strong maret thanks to IBM’s earnings.

TIM Lesson: If you know you suck at buying breakouts, don’t be early, wait to buy until right before the market close.

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Two Great Book Reviews And A DVD Review To Boot!

I absolutely love getting emails like this:

“Tim, I just wanted to thank you for An American Hedge Fund and PennyStocking. My boyfriend was the first to read your incredible book and now my boys, Charlie, 6, and Julian, 4, can’t get enough of it; they make me read it to them every night! And your DVD, oh my, it’s so taught us so much; so now we’re not afraid of any recession because as you say “you can profit from betting against companies managed by all the idiots on Wall Street!” And thanks to your strategies, we’ve already made a few thousand dollars in one month through short selling some of these surging microcaps! So, thank you, thank you, thank you, you’ve changed our lives and I’ll be forever grateful!”

Sincerely,

Michelle Casey

And check out the hilarious pics that were attached:

Not to be outdone, I got another great book review from a highly respected investment advisor, Ulli Niemann, aka The Wall Street Bully. Besides having a badass blogger nickname, Ulli advises his clients in ETF and mutual fund investing so I really had no idea how he’d take my wild journey. Guess it’s a good thing he’s a big believer in The American Dream! Here are some of my fav quotes from his review:

“Here’s a man who definitely learned from his shortcomings and is willing let the world know about it by sharing them in his book.”

“The knowledge he gained from several years in the trenches represents wisdom that I have found also applicable to the world of trend tracking.”

“Any trader or investor should adhere to Tim’s findings. This book is a fast and fun read, and I couldn’t put it down.”

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