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Big Changes In Axion's FINRA Short Sale Ratios 34 comments
For the last couple years I've been using the values in FINRA's Reg SHO Daily Files as a tool for estimating the number of restricted shares that flowed into the market from private placement purchasers who bought shares of Axion Power International (AXPW.OB) in the company's 2009 private placement and earlier offerings.
Thanks to some welcome help from HTL, I've created a spreadsheet that starts with the daily data beginning in January of 2010 and then aggregates the values on weekly and monthly basis. As the last step in my analysis, I've calculated a monthly average percentage and the standard deviation among the monthly percentages.
For the 34 month period beginning with January 2010 and ending with October 2012, monthly short sales averaged 32.06% of total reported trading volume and the standard deviation was 9.85%.
In November the short sale percentage dropped to 17.2% of total volume and in December short sales were only 12.49% of total reported volume. It was basically 2 Sigma event.
Now that we're almost done with January and short sales for the month to date are 12.61% of total reported trading volume, I think we're firmly in the grip of a "new normal" where the big uglies are gone and the flow of old shares into the market is basically over.
Today I decided to put the monthly "short sales as a percentage of total volume" numbers into a graph for those who are more visually inclined. Here it is:
(click to enlarge)
Until very recently, monthly short percentages below 25% were very rare. Now it looks like 12.5% may be the intermediate "new normal." It will probably take a couple more months for the short sale numbers to bottom, but I won't be surprised to see something significantly lower than 12.5%.
JANUARY 26th ADDITION: This morning a comment from Iindelco got me scrambling to see if I could find a way to show the short percentage as an overlay on a bar chart that also shows total monthly trading volume. Here it is:
(click to enlarge)
I think the new graph layout was a great suggestion.
Disclosure: I am long AXPW.OB.
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This post has 34 comments:
Just my observation, but I think what I am seeing mirrors your data.
But once serious news hits, those who then want in are going to have buy from a group of sellers, the grim brotherhood, who already occupy deep trenches of knowledge and who will just have been given multiple new powerups: ++health, ++conviction, ++strength ++ammo, ++armor, and above all +++MORE KNOWLEDGE...which will be that much more powerful because it will confirm and solidify much previous knowledge. BMW fleet testing or follow on orders from NSC? It'll be like you just instantly turned our trenches into reinforced concrete bunkers. Pry us out of those, losers. ;)
Those looking to dislodge us from our fortifications are going to have to bring big wads of cash if they want to even make it across no man's land. The conditions are set. All it's going to take is the right piece of news.
So if I had two accounts, and each time supply dwindled I sold myself 100,000 shares at a few pennies below market, then I keep the price low and volume up. Thus creating for myself the perfect environment for purchasing at the next private placement ( if there is one).
Well its a conspiracy theory I like better than the grassy knoll.
Also could be explained that there is still one large holder selling and a few catfish exchanging hands.
I hope the special sits report shows us something.
The goal of churning between accounts is usually to create fear and allow the churner to buy shares cheaply. If I want to accumulate shares on the cheap, I can put out a 100,000 share AON offer at a lowball price in one account and then buy those shares in another account with very little risk that somebody else will come in and snag the block before my buy order arrives.
If other holders are watching the market and feeling nervous, my big sale may be enough to shake a couple smaller blocks loose at the lower price. Properly played I can flip 100,000 shares between my accounts for the price of a couple commissions and maybe pick up 20, 30 or 40 thousand additional shares at or near my lowball bid.
The great part is that it doesn't even take a conspiracy and I can do it all from the privacy of my workstation. These kinds of games are played all the time by market makers and professional investors, and the only way to truly eliminate the game playing is to take the big blocks out of the hands of the pros and redistribute them among a large number of retail accounts.
John, Didn't you indicate SS would be reporting holdings soon?
Axion hasn't done a private placement since December 2009, so the group tracked in the FINRA data includes the two bankruptcy trustees, Quercus and the four big 2009 buyers.
I *suspect* that Special Sits may have sold it's 2009 investment in 2011 and then re-upped in the February 2012 offering. Since the 2012 deal was a registered direct offering, there was no disclosure about who the buyers were and there's no way to run my suspicion to ground.
Special Sits' next quarterly holdings report is due by February 15th and they're usually a few days early.
My quick scan of AXPW volume over the time frame of your graph above tells me I should have gone to sleep earlier last night. Or maybe I did. ;)
My eyes want to tell me I see some trending there but I'm not so sure it exists. I was trying to see some volume tracking from the discussions we've had on movement from weak to strong hands but it may be a little early yet. We'll see if it happens this year but with the capital raise in S1 and hopefully some events we've been looking for bearing fruit this year it's probably too much noise to filter out.
Anyway, a very timely article. Thanks as always for your efforts.
And I'm still looking forward to the annual show your cards event from Special Sits. These guys seem to be a crafty remnant from that one group that caused us the distress we've been waiting for a break from. I'm afraid I was surprised to see them reposition after waving goodbye based on your and HTL's tracking efforts. Drat!
– http://1.usa.gov/W7cuoJ
You can pick out the Holdings Reports by looking at the "File/Film Number" column on the right hand side of the page. If there's an entry in that column, that's the file you want.
Let's just hope that from the recent low we continue to see higher lows. News of an order for fleet testing will send shorts, if there any left, to cover feverishly.
My thinking is that in addition to shorts caused by the factors you mention, just daily trading activity causes daily short sales, on average, higher that what you seem to suggest will end up as "normal" for AXPW.
First, I didn't examine the companies or any history or longevity or investor holdings, ... But for the month of January for all reported FINRA data for all reporting companies, by company ...
# of syms 18032
Avg Tot Vol 7588230
AvgShtVwEx 3216251
AvgShtVw/oEx 3209547
AvgSht%wEx 44.74%
AvgSht%w/oEx 44.62%
So unless there's something about AXPW that's radically different from the other ~18k symbols reported by FINRA for OTC issues, I have difficulty seeing how AXPW would *eventually* end up differently.
As a semi-sanity check, this jibes with what I've observed for issues trading on exchanges, generally speaking.
Of course, I'm working with incomplete knowledge and only data - not the same thing as knowledge at all.
HardToLove
While your general observations are undoubtedly correct for exchange traded securities, issues that are margin account eligible and issues that don't take a 100% haircut for FINRA net capital calculations, pennies are a different world; at least in my experience.
So far the data seems to be re-confirming my past experience with market maker dynamics. It may be too early for a definitive conclusion, but I believe a three-month string of 1.5 to 2.0 Sigma events is worth noting.
perhaps there is. It could be AXPW is that anamoly given the way the stock has been bought primarily by retail holders over the past four years, and there has been no new issuance of the stock in certificate form since then. The other companies you track may not have had the opportunity to work through a finite number of shares in certificate form the way AXPW has.
Just one idea to reconcile yours and JP's opposing views.
I presume that we will get price rises and as it does rise the potential profits from various types of trading, including MMs, becomes more lucrative.
Even after the "big uglies" exit, likely completed by EOM October(?), and at low prices, we can see daily short sales spikes, albeit at lower highs, on my charts that appear roughly around the time we see prices rise. January has been slightly different in that the rise in short percentage around price moves up is not as pronounced - may be related to volume being higher as x short divided by higher volume = lower percentage.
But there are other reasons, touched on many times, where sells don't cause shorts.
Anyway, I'm not trying to convince anyone and I don't know or think that John's view is wrong. I'm just cautious about it as so much has changed in the investing and trading environment with computers everywhere, every broker seeming to have a MM ID, etc. I'll remain suspicious until I see data that shows AXPW will be different - when we have consistently higher prices and trading volume with intra-day spreads and inter-day swings that offer profit potential. If daily shorts stay consistently lower then I must conclude that something about AXPW is different from the other ~18K companies on the OTC.
HardToLove
Particularly when they arrive right at the time predicted? Am I incorrect in attaching added meaning to the fact that not only are we seeing a marked falloff in FINRA short sales, one that for now appears sustained, but we're seeing this at precisely the time that other calculations and logic said we should? I know (I think) at most it only means that the 2009 big uglies are indeed gone, IE those holdings have now been diffused into a wider retail base, but still.
Now, the chance that we have one or two other big uglies (SS) now operating in a less visible fashion with more recently acquired shares still exists, but that's likely to be a much smaller problem no? More speed bump than roadblock for the next run?
If you look at the monthly volume chart over the last three years the growth has been impressive. Total 2009 volume was 7.2 million shares. In 2010 volume jumped to 22 million and in 2011 it jumped again to 77.7 million. Last year it was 86.4 million.
The pushing and shoving by big holders was largely responsible for the volume ramp, but now the market is accustomed to dealing with 7 or 8 million shares a month and the market dynamic is different because Special Sits looks like the big dog and their last reported holdings only represent 3% of 2012 volume.
When you try to compare today's balance of market power with (1) early 2010 where five different holders had blocks that represented 100% of 2009 volume, (2) early 2011 where five different holders had blocks that represented 33% of 2010 volume, or (3) early 2012 where at least two holders had blocks that represented 10% of 2011 volume, there is simply no comparison.
Three years ago the big uglies were a pack of five snarling wolves. Today we have an underweight yellow lab.
- Start stop for autos
- Railroad use for rail yard switching
- Hybridization for long haul trucks
- High quality back up power for homes
- Frequency stabilization for solar and wind generators
--
The other markets that I do not see AXPW approaching just yet are
- Power for large ships docked in ports
- Power for the variety of boats, and other larger passenger ships
- Power for telecom back up
- Power for data center back up
- Back up power for utility substations
- Back up power for large buildings
---
The one feature of the PcB is the self equalization that is a huge technical advantage.
---
Back to the main story, what will shake this stock loose to run up is news backed up by orders and I believe 2013 is the year...
Ultimately the issue for a company like Axion boils down to "where do you want to spend the management, staff time and money to develop a market?"
Automotive, rail, hybrid trucks and heavy truck APUs are all huge markets that can absorb millions if not tens of millions of batteries per year. So they merit a lot of care, feeding and attention. The work involved in developing and proving a battery system for Norwegian Fjord ferries is no easier or less expensive, but the payback from a successful development is far less attractive.
Particularly in the early stages, it's important for a technology company to cherry pick the best markets, even if that means you ignore other markets that might be interesting.
So far, it appears that is holding well.
There's a *possible* new channel with a slightly steeper slope that may be in play - too soon to tell.
Anyway, we are bumping the 200-day SMA right now, so if there's a pause before starting the next up-leg in the channel it wouldn't be a surprise.
HardToLove
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