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What is going on at Competitive Technologies, Inc. (AMEX:CTT) is an example of positive fundamentals being trumped by a mismanaged private placement.

Ever since CTT announced a Private Placement to raise capital and that the AMEX was considering delisting if the company did not meet shareholder equity minimums, the stock has been understandably under pressure.

The selling has largely come from the liquidation of more than 900,000 shares by institutional holders that did not want to have an investment in their portfolio with the cloud of a possible delisting, along with scared investors and short selling. Fundamentally, these money managers and mutual funds apparently were comfortable with CTT's chronic pain management technology and were long term investors. But stepping aside until after there is no delisting threat was their strategy--and a smart strategy considering the 50% decline in the stock over the past two and half months.

The short interest in CTT has risen from 63,948 shares (as of May 28) to 221,926 shares short (as of July 30).The short interest is due to be updated any day now, and the prospect of the short interest being over 300,000 is pretty high.

Now, everyone is in a "wait and see" posture. The original concern of a possible stock delisting was the institutional shareholders exiting all at once. But the stock has already been dumped by those holders.

CTT announced the private placement on June 2 and on June 4, CTT received the AMEX delisitng notice (AMEX has postponed the hearing until August 25). Since June 2, CTT has declined from $3.25 to the current price (August 24) of $1.51. So, until there is clarity on the capital raise and AMEX listing (which should be by the end of this week), the stock will be in difficulty.

The salient point here is that there are times that investors are afforded another opportunity to enter an investment position on factors divorced from the fundamentals. The "special situation" is the negative perception currently and aggressive investors taking bets on the short side.

CTT does not need alot of capital. The company is not going bankrupt and continues to make sales progress with its Calmare device.Even after a completed private placement, the total shares issued and outstanding will not be over 13.6 million shares. But it is undeniable that the AMEX requirement for a minimum level of shareholder's equity is the immediate hurdle and the all-consuming focus by management and investors.

If the company announces the successful completion of the private placement and the reassurance to shareholders that the AMEX listing is intact,the stock would most likely rebound sharply--from renewed buying, short covering and possible reentry by institutional holders.

If CTT loses its listing, there will be a distribution as investors with no interest in being an investor of a OTCBB stock depart and new investors and traders come in to participate as the company continues its sales and marketing of the Calmare pain management system which was recently highlighted at the American Society of Clinical Oncology (ASCO).

My position in the stock (no position) mirrors my strategy. I will wait for the cloud to lift (whatever the outcome) before returning to a company that has, in my view, a revolutionary non-narcotic and non-invasive alternative therapy for chronic pain relief that has the potential to see exponential sales growth in the near term.

Disclosure: No positions as of August 24