NQ Mobile: There Are No 'Coincidences'

Jun.30.14 | About: NQ Mobile (NQ)

Summary

This is a public service announcement to remind you that there are no "coincidences" in the market.

Having said that, NQ sold off on monstrous volume Friday morning; either dumping that crushed stops, panic selling, or a fat finger trade that induced panic?

Trade sizes were enormous, leading me to believe that something could potentially still be bubbling under the surface at NQ.

Regardless, the market remains queasy about NQ and it should not be in play as a position here - there's too much risk.

As another day passes in the NQ Mobile (NYSE:NQ) saga, and the sun shines on a new week, NQ diehard longs will be happy to put the panic attack that was last Friday behind them.

If there's one thing that I've often talked about in the market, it's that there are no "coincidences". By that, I mean, unusual price action - I've found - is usually a good precursor to potential coming news. This is why the brothers Najarian take a good 15 minutes out of every day on CNBC to try and identify "out of whack" options trades; they're trying to follow the leads of those who may know things that they don't. Sometimes, it nets them a winning trade. Other times, it doesn't.

I learned this first hand a year ago, when a biotech I was following sold off in a massive way - enough to trip a circuit breaker - on no news. I wound up ignoring the sell off and "sticking to my guns". The next day, the company came out and reported that the Phase III results they were waiting on had failed. There was money lost, and QTR felt like a total boob for recognizing, but not acting on, a sign that things may not be okay.

Then, of course, there was the day of the Knight Capital Group (NYSE:KCG) algorithm error from a couple years ago. On Knight, I commented about the day of their fund-crippling algorithm error in another article:

I knew something was wrong at Knight Capital the day of their algorithm error, because the stock was getting crushed down to $9 on massive volume almost an hour before the story ever even hit the newswire. After investing long enough, I've started to learn, "there are no coincidences". I was able to trade the Knight disaster accordingly just by watching the volume. I took my short position, they released the news, the rest is history. The pre-news trading tipped me off. If you don't think there were insiders that dumped into that news, then I have some real estate in rural Alaska to sell you.

So, what is the point to all this "no coincidences" mumbo jumbo?

The point is that these examples were the first thing that came to mind on Friday afternoon watching NQ trade after the open. As you can see in the below chart, the stock sold off in a massive way, dropping nearly 15% at one point - on no news.

Click to enlarge

The sell-off was alarming - but the volume told a lot of the story. The size of the trades coming in were massive. Yes, it could have just been a fund that wanted out, or even a fat finger trade that caused some selling panic. But, whatever it was, it took out a ton of stops on the way down.

It was just Wednesday of last week when I pointed out that the market didn't seem overwhelmingly convinced by NQ Mobile's explanation of events thus far. That's not to say that NQ won't get their annual report done with audited financials - but, as days pass it's looking less and less likely. It's now been over 60 days since the original request to delay their report.

In the midst of all of this, NQ painted fresh 52 week lows on heavy volume on Friday. When the volume dried up somewhere around midday, the stock began a modest recovery and finished the day above $6, after getting as low as $5.60.

During the day on Friday, I had many people get in touch with me via Twitter or Skype, letting me know that they were glad they avoided getting involved with NQ in the first place. I feel the same way - there's just too much risk and uncertainty here - why wouldn't you just buy or trade any of the thousands of big board stocks that don't carry the risk of 100% loss with them? You want big money opportunities? You're better off throwing some money at speculative options on a big board stock than you are in trying to buy NQ and hope for a bounce.

But, as sure as the sun shines, there will be a constituency of longs that come on SA and Twitter, defend the company, and continue to tell me how wrong I am - no matter how low the stock goes. That's fine with me.

The longs have a good point in the fact that the fraud allegations against NQ Mobile have not been proven beyond a reasonable doubt, in QTR's opinion. But, that's an argument that "if you turn it the right angle, it's as thin as this playing card".

My personal thoughts on NQ continue to be to avoid at all costs.

Ultimately, you're free to do as you please, however, as QTR has learned - in the market, there are no "coincidences". Best of luck to all investors.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.