Neuralstem stock was very volatile yesterday after the company reported results of their uncontrolled phase II trial of NSI-566 spinal cord stem cells. In the pre-market, the share price was up substantially as retail traders focused on the company's claim that 47% of ALS patients responded to treatment and exhibited a markedly diminished decline in function over the nine month duration of the trial, as measured by the ALSFRS-R. However, once regular trading opened it became clear that the gains weren't going to hold and in fact the share price declined substantially over the course of the day. The declines accelerated after Adam Feuerstein published an article critical of the data. As usual, I mistook a temporary plateau for a bottom and bought my initial 2000 share tranche at 2.95. The stock closed at 2.37. [more]
This complaint relates to the manipulation of low float stocks for profit by the stock blog site Seeking Alpha. Seeking Alpha generates income through sales of subscriptions to their premium service SA Pro. Seeking Alpha pays certain blog writers for submissions earmarked for SA Pro and then frontruns these articles to SA Pro subscribers. These articles are generally one-sided and promotional. SA Pro subscribers are then able to purchase stock in the companies promoted in the articles before the articles are published on the Seeking Alpha website for the general public. Seeking Alpha is highly influential in the stock trading community due to the fact that their articles are carried on the Yahoo Finance news feed, and Yahoo Finance is the predominant news portal for retail stock traders. A Seeking Alpha article can have a dramatic effect on the share price of a low float stock in the short term. Therefore, Seeking Alpha is selling individuals the opportunity to profit from short-term trades in stocks whose price they plan to manipulate through release of a promotional blog piece.
I will cite two individual examples of this practice, although there have been many.
On March 20, 2014 an article was published to Seeking Alpha concerning the stem cell company Aastrom (ASTM). The title of the article was "4 Reasons Aastrom Looks Good Right Now." The tone of the article was highly positive and promotional. Aastrom has a tiny float of 4 million shares and trades at very low volumes (typically 50K-100K). On March 19, the day the article was released to SA Pro subscribers, volume spiked to almost 600K and the stock spiked to an intraday high of 4.12 from an open of 3.78, despite a lack of any material news regarding the company. The intraday high on March 20 after the article was published to the general readership was 5.33 and the intraday high on March 21 was 7. SA Pro subscribers had ample opportunity to profit substantially from this stock manipulation, as long as they sold before the share price steadily degraded back to the mid 3's over the next two weeks.
On April 30, 2014 an article was published to Seeking Alpha concerning the biotech company InVivo (NVIV). The title of the article was "InVivo's Day Has Arrived." The author was the same author that penned the Aastrom article described above, and the tone was similarly promotional. In the month up until April 25 InVivo stock had traded in a narrow range with a low volume of 50-150K. On April 25 the stock closed at 1.5. On April 28 volume spiked to 700K shares and the stock closed at 1.84, with an intraday high of 2.05. I believe this was the day the Seeking Alpha article was frontrun to SA Pro subscribers, two days ahead of general publication. On April 30 the article was published and over the next two days the stock rose to an intraday high of 2.25, providing ample profit to those who had loaded up pre-publication. However, by the close on May 5 the price was back down to 1.75.
I am not well-versed in securities law but it is hard for me to believe that the SEC can permit this form of flagrant stock manipulation for profit. I believe that every investor should trade on an even field and succeed or fail based on his own ability to acquire a deep understanding of the fundamental value of individual companies. The activities of Seeking Alpha and their associates make a mockery of the US securities system. [more]
It's been an interesting ride the last four months. I thought watching my portfolio going up 600K in three months was wild, but it was nothing compared to seeing it drop 500K in less than a month. After watching my net worth drop more than 50K today for about the ninth time in two weeks, I decided that I had no choice but to mitigate risk and liquidated most of the RNAi and speculative IPO positions in my portfolio. If biopharma continues to bleed, I will liquidate more positions and go to all cash if I think I have to. Alll trades are reported in my twitter account with the #zzporte hashtag. [more]
Lately it seems that most of the stocks in my database have become overpriced relative to historical valuations. Some might consider these prices justified based on the merits of the individual companies or macro economic factors affecting the biopharma sector. They may be correct, but I have to consider at least the possibility of a developing bubble and limit my exposure. This leaves me a few options regarding my remaining cash reserves.
1. Keep it in cash and stay on the sidelines. Very wise for a retirement strategy but the whole point of my biopharma concentration is to get wealthy before retirement. Cash isn't going to get me there.
2. Short stocks. I've started doing this with mixed results so far. Being deep under water on Acadia has negated my gains on the other five stocks I've shorted.
3. Diversify into cheap spec stocks that have a good chance of going to zero but can also become multibaggers. I've always hated this strategy because it attracts the lowest common denominator of traders who have zero objectivity, do minimal DD, and believe everything management says. In a word, suckers. On the other hand, there are ways for a trader with experience in the sector to optimize his chances of picking a winner rather than going to zero.
No matter how bloated valuations get in the biopharma sectors, there will always be sub-dollar stocks that are existing under the radar. With that in mind, I've recently taken significant positions in Palatin, Mast, and Cytomedix. What I look for in these companies is cash and catalysts. Reverse splits, dilution, and stagnation are death for this strategy. In general, the best time to buy is on a stiff decline after a financing with a defined catalyst within a year's time.
In the case of Cytomedix, a nasty dilutive financing drove the stock down from the 0.70 range to the 0.50 range but the company had 7M in cash as of the end of Q1 and commitments for another 18M which should prevent another sharp decline before the end of the year. Meanwhile, the first interim analysis in the RECOVER-Stroke trial will take place in the near future and barring any nasty surprises may draw some stem cell hypers back to the stock. Topline data is expected in H1 2014.
Keep in mind that I believe the late stage trials in progress for all the companies I have mentioned will fail. Because the stocks trade in the pennies and at low volumes, someone will have to draw attention to the upcoming catalysts to create a run. That person won't be me. I might bet on hype and manipulation, but I won't have any hand in creating it. [more]
Just a quick note to say that all these trades will continue to be posted on Twitter with the hashtag #zzporte, but the duplication of work required to post them on CAPS for the few eyeballs here is pointless. I haven't decided about my proprietary trades but many of them (like the recent Transition Therapeutics trade that netted me 11K) can't be posted here because the stocks are unratable on CAPS. So for those of you who haven't made the move to Twitter yet, it's time to man or woman up and get your butt over there. [more]