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John Petersen is executive vice president and chief financial officer of ePower Engine Systems, Inc., a company that has developed, built and demonstrated an engine-dominant diesel-electric hybrid drivetrain for long-haul heavy trucks that promises fuel savings of 25 to 35 percent depending on... More
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  • Updating My Axion PIPE Share Overhang Estimates 31 comments
    Mar 6, 2014 8:48 PM | about stocks: AXPW

    This morning I posted a comment on Axion Power Concentrator 310 promising to update my estimate of Axion Power International's (NASDAQ:AXPW) remaining PIPE share overhang after the FINRA Short numbers for the day were published.

    A few days ago I wrote a comment that suggested the PIPE Investors should run out of stock when cumulative trading from 29-Jan-14 hit about 51 million shares. As of today, the cumulative trading from 29-Jan-14 stands at 46.7 million shares, which would leave about 4.3 million shares of volume left to go before ZRPSOD (zero remaining PIPE share overhang day).

    Since I hate the idea of saying "one more day like today ought to take the PIPErs out completely," I decided to do a different kind of analysis to see if it yielded a comparable result.

    Between 25-Apr-13 and 4-Oct-13, Axion issued 39,836,851 shares. While there may have been some inconsequential stock issuances to directors during that period, I believe those share issuances were small enough to ignore for purposes of this analysis.

    On 17-Oct-13, Axion filed a Form S-1 registration statement that included a table on page 44 which specified the holdings of each PIPEr as of 4-Oct-13. If you total the reported numbers of shares owned set forth in footnotes 2 through 10, you get a combined stock inventory of 13,244,873 shares on that date.

    Since we know that 39.8 million shares were issued and 13.2 million shares were held in inventory on 4-Oct-13, we know the PIPErs sold 26.6 million shares between the first stock issuance on 10-Jun-13 and 4-Oct-13. During that period, total reported trading volume in Axion's stock was 63,513,000 shares, so sales by the PIPErs represented 41.9% of total trading volume, or 83.8% of total sell-side volume.

    Between 5-Oct-13 and 28-Jan-14, Axion issued another 45,643,548 shares. While there may have been some inconsequential stock issuances to directors during that period, I believe those share issuances were small enough to ignore for purposes of this analysis.

    On 31-Jan-14 Axion filed another a Form S-1 registration statement that included a table on page 44 which specified the holdings of each PIPEr as of 28-Jan 14. If you total the reported numbers of shares owned set forth in footnotes 2 through 8, you get a combined stock inventory of 11,058,701 shares on that date.

    Since we know the PIPErs started with an inventory of 13.2 million shares on 4-Oct-13, received 45.6 million additional shares during the period from 4-Oct-13 through 28-Jan-14, and had an inventory of 11 million shares on 28-Jan-14, we know they sold 45.6 million shares between 4-Oct-13 and 28-Jan-14. During that period, total reported trading volume in Axion's stock was 99,967,600 shares, so sales by the PIPErs represented 47.1% of total trading volume, or 94.2% of total sell-side volume.

    My February 1st worksheet estimated that the PIPErs would receive an additional 12,059,087 shares after 28-Jan-14, which would bring the total remaining overhang to 23,117,788 shares. Since 28-Jan-14, cumulative trading volume has been 46.7 million shares. If the PIPErs represented 47.1% of that trading volume they should be down to about 1.1 million shares.

    If my estimate of the total number of shares issuable after 28-Jan-14 is too low, then they may have a few million shares left. The same is true if the PIPErs percentage contribution to total volume was lower in the last month and a half than it was in the October through January period. My gut tells me that my February estimates were very close and there's been no discernible change in PIPEr behavior since 28-Jan-14, except that they've let the price rise a little.

    If volume tomorrow is comparable to the volume we've seen over the last three days, I think the overhang could very well be gone by this time tomorrow.

    The surest sign that Elvis has left the building will be a precipitous decline in the FINRA daily short percentage which was 41% yesterday and 26% today. When that percentage falls into single digits, we'll know they're done.

    Disclosure: I am long AXPW.

    Stocks: AXPW
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Comments (31)
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  • jveal
    , contributor
    Comments (644) | Send Message
     
    Thanks for your detailed analysis JP. I appreciate all the work you have done to inform us about Axion. As an investor with only three years under my belt I have learned a lot from you about the stock market.
    6 Mar 2014, 09:09 PM Reply Like
  • RBrun357
    , contributor
    Comments (820) | Send Message
     
    JP,

     

    Thank you for your update. I am loving the idea of the PIPERS becoming a non issue in our quest. I will not hold your feet against the fire if for some strange reason you miss your prediction by a few hours! ;-)

     

    But since I am a believer I am betting that you are going to be spot on!
    6 Mar 2014, 09:15 PM Reply Like
  • isthisonebetter
    , contributor
    Comments (385) | Send Message
     
    ZRPSOD, the most underused acronym in recent history.
    6 Mar 2014, 09:16 PM Reply Like
  • John Petersen
    , contributor
    Comments (30629) | Send Message
     
    Author’s reply » I'd love to see ZRPSOD enter the common lexicon, but somehow I doubt it.
    6 Mar 2014, 09:22 PM Reply Like
  • Bill Burtchaell
    , contributor
    Comments (413) | Send Message
     
    hopefully after today we won't need to measure that play anymore?
    7 Mar 2014, 11:32 AM Reply Like
  • Mr Investor
    , contributor
    Comments (3219) | Send Message
     
    Great work, John. Most helpful to know the PIPE selling will soon be history.
    6 Mar 2014, 09:45 PM Reply Like
  • D. McHattie
    , contributor
    Comments (1844) | Send Message
     
    Thanks, John.

     

    One more piece: what is our 'normal' or 'average' FINRA daily short sale percentage?

     

    I'm wondering if Elvis isn't already on his jet, making fried peanut butter sandwiches for his entourage.

     

    D
    6 Mar 2014, 09:45 PM Reply Like
  • John Petersen
    , contributor
    Comments (30629) | Send Message
     
    Author’s reply » The FINRA short percentage jumps all over the place on a day to day basis and it only captures part of the PIPErs' selling. Since there's so much daily variability I've come to think of anything between 20% and 40% as "normal." The more telling factor is when the percentage drops into the mid to low single digits.
    6 Mar 2014, 09:51 PM Reply Like
  • topcat1906
    , contributor
    Comments (77) | Send Message
     
    JP,
    So you believe there will be more rapid price appreciation after ZRPSOD, than today's gains?
    I am looking forward to brighter days for All.
    7 Mar 2014, 01:40 AM Reply Like
  • CloudSpin
    , contributor
    Comments (94) | Send Message
     
    We are up 60% in three days of trading with huge never seen before volume. Who is buying? Is this a bear squeeze?
    7 Mar 2014, 10:43 AM Reply Like
  • John Petersen
    , contributor
    Comments (30629) | Send Message
     
    Author’s reply » I think it's simply a long-term supply and demand imbalance coming into balance, and the end of effectively unlimited share supply.
    7 Mar 2014, 10:56 AM Reply Like
  • topcat1906
    , contributor
    Comments (77) | Send Message
     
    The Power of Supply and Demand on Stock Prices
    “It takes big demand to move price up, and the largest source of demand for stocks is by far the institutional buyer.” — William J. O’Neil
    7 Mar 2014, 02:16 PM Reply Like
  • H. T. Love
    , contributor
    Comments (19433) | Send Message
     
    Cloud: Unlikely a short squeeze with only ~660K shart as of last report.

     

    http://bit.ly/uGVJsb

     

    It's been heading haltingly lower towards that area since 8/15. Use the 20 per page setting.

     

    HardToLove
    9 Mar 2014, 09:03 AM Reply Like
  • Greenfire87
    , contributor
    Comments (654) | Send Message
     
    The "pop" is from Tesla super factory taking bids from BLDP, and others. The whole fuel cell sector ran up like crazy. ZBB, FCEL, BLDP, AXPW.
    7 Mar 2014, 12:00 PM Reply Like
  • ARGE
    , contributor
    Comments (724) | Send Message
     
    If we are riding the coattails of the TSLA bubble, might be a good idea not to say anything bad about their cars.
    7 Mar 2014, 12:11 PM Reply Like
  • Greenfire87
    , contributor
    Comments (654) | Send Message
     
    Like the price of their cars? lol The middle class has to give up any spare change (food money) to buy Obama care. Just what percentage of people can now afford 70-90K for a car?
    7 Mar 2014, 12:28 PM Reply Like
  • ARGE
    , contributor
    Comments (724) | Send Message
     
    Why I think that would be the 1%, or the one-pretenders.
    I am saying let the spill over come to AXPW's stock.
    7 Mar 2014, 03:59 PM Reply Like
  • H. T. Love
    , contributor
    Comments (19433) | Send Message
     
    John: "The surest sign that Elvis has left the building will be a precipitous decline in the FINRA daily short percentage which was 41% yesterday and 26% today. When that percentage falls into single digits, we'll know they're done."

     

    I'd be surprised to see signle-digit short sales percentages for now as long as volume remains high. I think the ~26% for 3/6 and 3/7 ~29% type of numbers will be the lower bound while volume remains high. If volume tanks, then it's easier to get single-digit daily short sales.

     

    Just saying that if you don't see those lower percentages you don't want to use that as a basis to doubt the conclusion that the PIPErs are out of shares.

     

    MHO,
    HardToLove
    9 Mar 2014, 09:19 AM Reply Like
  • John Petersen
    , contributor
    Comments (30629) | Send Message
     
    Author’s reply » Volume must tank when the PIPErs run out of shares because 80% to 90% of the supply will disappear overnight. Without willing sellers and willing buyers, you can't have high volume.

     

    Since 1/1/10, a cumulative total of 431 million shares have traded. That's 215.5 on the sell side and 215.5 on the buy side. The total supply that's flowed into the market from legacy problem children and 2009 through 2013 buyers in Axion's offerings is about 184 million shares. That means the base has only sold about 30 million shares, or 15% of total sell side volume.

     

    Our differing expectations about future daily short sale volume all go back to our fundamental disagreement about what market makers do with OTCBB stocks. The numbers over the next week or two should put that debate to rest one way or the other.
    9 Mar 2014, 09:25 AM Reply Like
  • H. T. Love
    , contributor
    Comments (19433) | Send Message
     
    I thought my Q&D study of the averge daily short sales of the 8K+ stocks on the OTC some time back was a good indicator. I'd have to find the comment I made, but it was over 30%.

     

    8K+ stocks. How will AXPW be all that different?

     

    HardToLove
    9 Mar 2014, 09:59 AM Reply Like
  • John Petersen
    , contributor
    Comments (30629) | Send Message
     
    Author’s reply » You and I attribute reported short sales to different causal factors. You've looked at a broad universe of companies and concluded that the only explanation is market maker speculation. If I had the time and inclination to examine that same universe of companies, I'd undoubtedly find that the vast majority have the same kind of supply overhangs I've tracked with Axion.

     

    We've had one brief period in the last four years when Axion didn't have a massive overhang of sellers that were willing to sell at depressed prices. That was Q1-13 when the last of the 2009 investors were leaving the arena. In March and April of 2013, the FINRA short numbers plummeted into the 7% range. Once the PIPErs are out of the picture, I expect the FINRA short numbers to plummet again until Axion does another offering that creates a new overhang.

     

    I'll be very surprised if the FINRA short sales remain in the 30% range you expect and I think its fair to say that you'll be surprised if the numbers plummet as I expect. Let's just wait and see what happens next.
    9 Mar 2014, 10:19 AM Reply Like
  • H. T. Love
    , contributor
    Comments (19433) | Send Message
     
    "concluded that the only explanation is market maker speculation"

     

    Not true.

     

    That was *one* of the conclusions that I drew at various times related to specific activity I saw in AXPW. Could've been wrong but I *always* said "short-term long positions".

     

    My long-term across the market thinking is related purely to the mechanics of how sales *must* be flagged short if not under the control of the selling entity. If a normal T+3 settlement is needed for shares to be controlled by the market maker that did a buy and sell (although "sell high and then buy low" would be normal, the effect would be the same), as you aver happens with most trades, then ~1/2 of sales would have to be flaggged as short.

     

    Factoring in some intra and inter-broker trades that bypass the market maker would drop the percentage some.

     

    You picked up and retained only part of my thoughts.

     

    HardToLove
    9 Mar 2014, 10:32 AM Reply Like
  • John Petersen
    , contributor
    Comments (30629) | Send Message
     
    Author’s reply » I don't agree with your conclusions, but I'm happy to wait for the data to prove me right or wrong.

     

    AFAIK when a broker has shares on deposit in its account and places a sell order with the market maker, the market maker is deemed to have control over the shares.
    9 Mar 2014, 10:50 AM Reply Like
  • bazooooka
    , contributor
    Comments (3684) | Send Message
     
    JP,

     

    Is it fair to conclude that the 30 million shares represents a large number of the old guard from this board.

     

    It wasn't that long ago (pre 2012) that 30M made up a huge percentage of the retail base right? It sounds like a small number now (since were over 200M shares) but actually may mean that greater than 50% of the old retail base have left these past 3 years.
    9 Mar 2014, 03:34 PM Reply Like
  • John Petersen
    , contributor
    Comments (30629) | Send Message
     
    Author’s reply » As near as I can tell, the 2009, 2012 and 2013 deal investors have sold a combined total of 184 million shares. The first buyers of all those shares were retail investors.

     

    The 30 million number represents shares that didn't immediately and permanently go into sock drawers. It only quantifies cumulative volume of shares that traded more than once. It could represent 15 million shares that traded an average of two times, 10 million shares that traded an average of three times or just about any other combination you can think of.

     

    That number includes all day-traders, all investors who bought and sold for short swing profits, all former Axionistas who redeployed their portfolios in other directions and just about anything else you could imagine.

     

    We know that some of the old guard sold, but the numbers tell me that their sales were insignificant in the overall scheme of things. For every Mercy who bought and sold 30,000, we had a Tom, Dick, Harry, George, Fred, Sam and Aloysius who bought 30,000 shares and stuck them in the sock drawer.
    9 Mar 2014, 03:38 PM Reply Like
  • bazooooka
    , contributor
    Comments (3684) | Send Message
     
    HT,

     

    No rush, but I'd be happy to hear your "study" conclusions again once you do dig it up.
    9 Mar 2014, 03:56 PM Reply Like
  • bazooooka
    , contributor
    Comments (3684) | Send Message
     
    I'd think Volume will drop soon because some of us Axionsitas skinflints will only pay so much. But nevertheless if the float is held strong by retail than even lower volume can/will cause price movement since supply and demand must cross somewhere. However if volume stays strong than we "may" even conclude that Institutional money is sneaking in.
    9 Mar 2014, 04:00 PM Reply Like
  • H. T. Love
    , contributor
    Comments (19433) | Send Message
     
    Bazooooka: It was a Q & D (Quick & Dirty), not really a study.

     

    http://seekingalpha.co...

     

    The wEx and w/oEx refer to short sales with and without exempt (rule 2-stomething - 244? 204?).

     

    I had 30% stuck in my mind, but obviously brain cell # 2 was faulty in this case.

     

    HardToLove
    9 Mar 2014, 04:36 PM Reply Like
  • John Petersen
    , contributor
    Comments (30629) | Send Message
     
    Author’s reply » Bazoooka> I've long believed that the lurkers outnumber the buyers by a factor of five or more. A meaningful change in the price trend should be enough to get some of the lurkers off the sidelines and into the game. If they're joined by a few momentum traders it could get real fun.

     

    I'm trying very hard to avoid predictions because the only analogy I can think of that compares what I've seen before with what I'm seeing right now is that Rachel has always had a couple cats in the house and I think have a pretty good feel for how cats behave. That feel for how cats behave is not so good that I'd feel comfortable predicting the behavior of a lion in the house.

     

    HTL> It's worth noting that the January 2013 article said, "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%."

     

    For March 2013 the percentage fell to 6.73% and for April 2013 it was 6.83%. The short percentage shot back up again in May when Axion announced the PIPE.
    9 Mar 2014, 04:52 PM Reply Like
  • bazooooka
    , contributor
    Comments (3684) | Send Message
     
    Next few weeks should tell the tale assuming PIPErs are done. If there are "lurkers" in the wings - then they surely took notice of the pps action and wont want to miss out on any more upside. It can become self fulfilling because most shares won't get released until we get into 30-50 cent range or higher (much higher for some "strong" hands) so I'd expect good volume and pps change. If volume sinks though - then a more sideways type action could become the norm. My greatest hope would be new retail and professional volume entering in and normalize in the millions per day range and then TG gives a strong performance at the annual meeting coming up which keeps the momentum going. Alas, if there is good news about to drop then we can be off to the races. My greatest fear however is TG in placement talks already and the potential investors are currently twisting his arm to close the deal asap before pps runs anymore - that'd be no fun and I hope TG plays better poker this time. Also it would be nice if he could get more than 8-10M since that doesn't go much further than keeping the lights on for a year. Rather a 15-25M raise with a strategic investor could legitimize the idea that Axion is about to make some noise with a major oem.
    9 Mar 2014, 07:27 PM Reply Like
  • isthisonebetter
    , contributor
    Comments (385) | Send Message
     
    I hope that TG was right when he said any other cap raise would be for "expansion".
    9 Mar 2014, 07:49 PM Reply Like
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