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John Petersen is the executive vice president and chief financial officer of ePower Engine Systems, Inc., a Kentucky-based enterprise that has developed, built and demonstrated an engine-dominant diesel-electric hybrid drivetrain for long-haul heavy trucks that promises fuel savings of 30 to 40... More
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  • Big Changes In Axion's FINRA Short Sale Ratios 34 comments
    Jan 25, 2013 8:21 PM | about stocks: AXPW

    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 (OTCQB:AXPW) 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 OTCQB:AXPW.

    Stocks: AXPW
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Comments (34)
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  • I keep noticing that someone who wants to buy in large blocks (100,000+) keeps getting the orders filled at a discount to current shares. Yet the short sales do not reflect this. Seems to me that one seller remains who likes to sell in large blocks. Willing buyers just keep making discounted large bloc bids.


    Just my observation, but I think what I am seeing mirrors your data.
    25 Jan 2013, 09:07 PM Reply Like
  • Author’s reply » The 2012 investors bought registered shares that won't show up as FINRA shorts. Once we get beyond the FINRA data, I don't know of any way to figure out who is buying and selling, or for that matter who might be churning stock back and forth between controlled accounts to create an impression of weakness.
    25 Jan 2013, 09:20 PM Reply Like
  • "to create an impression of weakness..."


    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.
    25 Jan 2013, 09:31 PM Reply Like
  • " who might be churning stock back and forth between controlled accounts to create an impression of weakness. "


    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.
    26 Jan 2013, 07:33 AM Reply Like
  • Author’s reply » The one thing I've learned over the years is that finance is a blood sport and the players will always act in their own best interest. Over the years I've seen all manner of behaviors that are far from genteel.


    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.
    26 Jan 2013, 08:11 AM Reply Like
  • At the risk of affirming the rank of Captain Obvious, I think it may be useful for all to note that JP has been consistently predicting for quite a while that this very shift was going to occur, at just about this time, ok maybe just a bit late, but here it is. Prediction and then confirmation from at least one solid data series. That means something. I doubt it's mere coincidence. I mean what are the odds? Some guy yammering away for a year about a supply/demand imbalance that is running out as sure as sand through the hourglass, and whatdaya know, right on schedule the main tell on that all but flips polarity just like he called it? Nah, just lucky I guess. Not. So here we seem to have us a genuine leading indicator. And I bet six months from now in hindsight it's all gonna fit together perfectly. And from our altitude it's gonna be a thing of beauty to behold. ;)
    25 Jan 2013, 09:15 PM Reply Like
  • Yeah, 48. I believe you are correct. I try to keep up with all the news, APC comments, John's articles, PR's, FINRA data etc. and even though I can't find time for everything I find enough time to do enough research to know that we are very close to a major shift. I have a rule in that I rarely recommend stocks to my friends other than those that are in the business. Most retail investors don't understand the risks well enough related to development stage companies. In the case of Axion, I am very close to recommending because I am very close to believing this company is a sure thing.
    25 Jan 2013, 09:58 PM Reply Like
  • I kind of wonder what a monthly volume overlay would look like. Would there be a correlation based on the "Big Uglies" leaving or are they being replaced by subsequent PP investors and other "players"?


    John, Didn't you indicate SS would be reporting holdings soon?
    25 Jan 2013, 10:44 PM Reply Like
  • Author’s reply » The neat thing about the FINRA data is that it only includes investors who bought stock in a private placement and then sold them into the market under Rule 144 or a resale registration statement. Holders who bought registered shares from the company or big players bought shares in open market transactions won't show up in the data.


    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.
    26 Jan 2013, 05:53 AM Reply Like
  • Thanks John, The SS report will be interesting indeed.


    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. ;)
    26 Jan 2013, 09:35 AM Reply Like
  • Author’s reply » Many thanks for your suggestion on the overlay graph that shows both the monthly volume progression and the short percentage.
    26 Jan 2013, 10:08 AM Reply Like
  • And I keep trying to mentally superimpose the share price action on top of them both... but my intergalactic space modulator just can't seem to pull in the signal. ;)
    26 Jan 2013, 03:45 PM Reply Like
  • Thanks John, You're just too kind.


    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!
    26 Jan 2013, 04:10 PM Reply Like
  • Author’s reply » It's a quarterly show your cards event. The reports I track are on this page:



    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.
    26 Jan 2013, 04:22 PM Reply Like
  • Ah, Got it. Thanks for the correction, the link and the education.
    26 Jan 2013, 04:33 PM Reply Like
  • Author’s reply » Give a man a fish and you feed him for a day. Show a man a fishing hole and you turn him into story telling loafer.
    26 Jan 2013, 04:39 PM Reply Like
  • Thanks for doing the hard work to help us understand the market situation of AXPW prices. I don't understand why the Special Sits would sell its 2009 investment at a lower price in 2011. Please enlighten me. I would surprised if there is much churning at these depressed prices.
    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.
    29 Jan 2013, 12:36 AM Reply Like
  • Author’s reply » I would be surprised, but anything is possible if there's enough fear in the market. Frankly I don't see that much fear but one never knows.
    29 Jan 2013, 04:19 AM Reply Like
  • @ 481086 Me too, I did pull up and yahoo chart and compare, but did not see anything like a correlation. The big spike around Jan 11 was flat price for AXPW.
    29 Jan 2013, 11:40 AM Reply Like
  • John: I would still be cautious about assumptions regarding what short sales will settle at.


    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.


    26 Jan 2013, 12:48 PM Reply Like
  • Author’s reply » You and I have diametrically opposed views about the risks market makers will and will not accept when it comes to trading penny stocks and holding significant long or short positions.


    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.
    26 Jan 2013, 12:58 PM Reply Like
  • HTL, "unless there is something radically different with AXPW..."


    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.
    26 Jan 2013, 06:04 PM Reply Like
  • JAK: Another possibility is that my feeling about where short percentages will end up at is longer-term, allowing for price, volume changes, etc.


    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.


    27 Jan 2013, 07:44 AM Reply Like
  • "...but I believe a three-month string of 1.5 to 2.0 Sigma events is worth noting. "


    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?
    26 Jan 2013, 03:37 PM Reply Like
  • Author’s reply » The big uglies were a problem because they insisted on pushing and shoving around the pay window in an illiquid market. In other words, the sellers were competing for the available buy side demand.


    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.
    26 Jan 2013, 03:52 PM Reply Like
  • Thanks John. We sure have the confluence of a lot of significant factors just about upon us. With a dash of luck and timing it's going to be quite a foaming brew...
    26 Jan 2013, 04:12 PM Reply Like
  • Given, all the comments above and being a believer in this stock. I am still waiting on the series of stories that will propel this stock higher. I feel 2013 is the year for Energy Storage, especially the rebirth of Lead Acid batteries. As John has called
    - 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...
    26 Jan 2013, 04:21 PM Reply Like
  • Author’s reply » I'm reluctant to exclude potential markets at this time, but I will concede that the PbC probably won't be competitive for portable electronics and cars with plugs, which will be the exclusive province of lithium-ion until something better or safer comes along.
    26 Jan 2013, 04:43 PM Reply Like
  • Like this?
    27 Jan 2013, 12:22 PM Reply Like
  • Author’s reply » Weight and bulk are typically not issues in marine applications, but a battery-powered ferry does have substantial energy requirements that might be better served by other types of batteries.


    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.
    27 Jan 2013, 12:45 PM Reply Like
  • Good news on the short selling, and thanks for the great graphics. But it sounds like Axion will have to sell stock to fund its operations beyond March 31, according to its last quarterly report.
    26 Jan 2013, 06:14 PM Reply Like
  • Author’s reply » Axion will have to sell stock sometime during the second quarter. When lawyers draft disclosure documents they use fiscal quarter ending dates as bright line disclosure points. Axion's SEC reports have consistently said there was adequate cash to carry operations at current levels THROUGH the end of Q1, but that additional cash will be required before the end of Q2. There's not a lot of rubber in the timing, but there is some and Axion's management does know how to trim operating expenses if push comes to shove.
    26 Jan 2013, 06:26 PM Reply Like
  • Technical analysis of the price movements and the MFI and MACD indicators seem to suggest that the bottom of $0.20 may be for real. Over the last 3 years, MFI had basically tracked the price movements. But from Jul/Aug 12, the direction of MFI movement began to diverge from that of price. During the same period, there is also a similar divergence of the MACD indicator. This would suggest that the Nov low is a significant turning point. Since that low, the two indicators have been confirming the higher highs and higher lows trend in price movements. Technical analysis is often wrong but I think the divergence of price and indicator movements may forecast better days ahead.
    29 Jan 2013, 02:45 AM Reply Like
  • Aseflong: using my *experimental* charts and with traditional TA I suggested a potential rising trading channel had begun in mid-late November. DRich also noted the change in the MACD suggesting the same.


    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.


    29 Jan 2013, 06:34 AM Reply Like
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