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I own and operate an analytical services/ research company. Prior to this I was the Executive Director of Survey Research at the JD Power company.
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  • HT NVAX HYPOTHESIS - SUBSTANTIALLY REVISED 16 comments
    Jan 6, 2010 8:58 PM | about stocks: NVAX

    Nvax Case Study:
    Looking at HT's data has been very illuminating.  It cleared up a lot of questions I had about shorting, and in answering those questions, it changed my perspective on shorting..




    At Least Two Kinds of Shorting Behavior:
    HT's data clearly shows that Nvax's stock price has been adversely affected by shorting.  The main sequence in the price by percent shorts chart (Figure One - blue line) tells us that each dollar increase in the stocks price is associated with an increase of 1.4 % shorts.  So the typical short play appears to be based on regression to the mean logic. The higher a stock price, the higher the probability it will return to its mean value over some recent time period.  The time period is probably strongly related to the mean stock price over the past 30 days.

    However, HT's data (Figure Two) also shows us that at least one other kind of shorting exists. Shelf Induced Shorting. Right at the stocks peak price, management announced a shelf offering of 6.8M shares priced at $3.3 per share. I interpret that as management saying "that even though the stock is currently priced at slightly over $6 per share, management feels it's only worth $3.3 per share". After all, how much is a ten dollar bill worth if you sell it for five dollars? At this point, "smart money" started to short the stock beyond the amount predicted by our regression to the mean model. 



    A quick explanation of how shorting works helps us understand the reasoning behind the "smart money" play. When you short a stock you are selling "borrowed" shares at the current price.  Because of the increased selling volumn, the price for the stock drops. The shorters now buy back the shares on the open market to replace the shares they borrowed and bank the difference minus charges.

    When management announced their shelf offering on September 15, they signalled a shorting opportunity. The smart money started borrowing shares of Nvax high priced stock, sold them, and re-purchased at a lower price.  In this situation, the likely minimum lower price was pegged by management at $3.3 per share. So the smart money did not even have to figure out the lower valuation for the stock.

    As the stock price decreased, regular investors lost interest in the investment and they begain to sell their holdings. This established what is known as a self reinforcing feedback loop.  The smart money was likely borrowing, selling, and re-purchasing shares all the way down. This produced downward pressure on Nvax current holders, who also sold their shares (See Figure Three).





    What happens next?  By now, the really smart money has settled their short positions. However, as can be seen in Figure One, the current percent of shorts is 9 percent higher than expected based on the stocks current price.  The stock has stabilized at about $2.75, and there are about 9% more shorts out there beyond that predicted by the stocks valuation, that have not settled out of their short positions. My guess is that these people just jumped on the short bandwagon but really did not understand the underlying basis of the move.

    Meanwhile, Nvax is conducting second stage clinical H1N1 trials in Mexico. Given that the first stage trials were successful, its probable that the second stage will also be positive. As Nvax management stated on December 6 (2009), 'It'll be of little use to launch H1N1 vaccine after 3-4 months'. Nvax is planning to launch the product in Mexico during the first quarter of 2010. First phase rollout of the product in India is planned for between February and March of 2010. 

    When the successful clinical trials are announced, very likely in January 2010, the stock price should pop. How much will it pop? Under normal circumstances, HT's data suggests it will pop by between $1.5 and $3 per share.

    Short Squeeze?
    However, as we know, the Nvax short position  is currently larger than normal. In order for those shorts to prevent loosing money, they are going to need to buy Nvax shares at the lowest possible price. If the second stage clinical trials are successful, they are going to need to immediately buy Nvax shares. This should result in a Short Squeeze spike when successful clinical trials are announced. Of course, if the clinical trials are unsuccessful, or there is any kind of time delay with respect to approval for human use, the stock price will drop more and the shorts will make more money.



    Stocks: NVAX
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Comments (16)
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  • tripleblack
    , contributor
    Comments (13581) | Send Message
     
    Fascinating. That looks like a LOT of work, guys.

     

    Something that requires some serious thought...
    6 Jan 2010, 11:28 PM Reply Like
  • Mayascribe
    , contributor
    Comments (11197) | Send Message
     
    I'm beginning to think that NVAX is one of those stocks with such great potential that I have to just jump in, regardless of obtaining the "bottom" price. I have some shares, but I may want to quintuple. This potentially game changing stock alone makes me want to fess up and pay for shortsqueeze.com the 40 or so bucks a month membership.
    7 Jan 2010, 01:23 AM Reply Like
  • H. T. Love
    , contributor
    Comments (19441) | Send Message
     
    IMO, that's too much money, but I'm /very/ "cautious" about paying for unknown product.. If they offered a free trial, I might buy, depending on what I saw.

     

    We can get a lot of the data at the same time they do. I might even do some programming again to automatically scrape the data and generate the stuff if I get too heavily into it. Might take a while - I've not done code since ... 12/2001 when I developed, as a contractor, a boot/recovery CD for an IBM Storage Area Network application. Neat stuff.

     

    OTOH, if shortint.com gives you data that more than pays for itself, it's well worth it.

     

    HardToLove
    7 Jan 2010, 08:18 AM Reply Like
  • H. T. Love
    , contributor
    Comments (19441) | Send Message
     
    I think User's (apparent?) fav of VICL is also a very good bet. I'm looking for an entry there too.

     

    HardToLove
    7 Jan 2010, 08:19 AM Reply Like
  • tripleblack
    , contributor
    Comments (13581) | Send Message
     
    (VICL) has shown some strength lately.
    7 Jan 2010, 02:37 PM Reply Like
  • optionsgirl
    , contributor
    Comments (5202) | Send Message
     
    (NVAX) interview. If you can tell me when it was written, you win a prize!
    www.pharmamanufacturin...
    8 Jan 2010, 03:56 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (6282) | Send Message
     
    Author’s reply » Its from Dec 8, 2009. How do I know?

     

    Look down under More Content in the following link.
    It contains the publication date of the interview.
    www.silobreaker.com/no...

     

    Did I win the rubber chicken?
    8 Jan 2010, 04:23 PM Reply Like
  • Mayascribe
    , contributor
    Comments (11197) | Send Message
     
    H1N1 shots have arrived here in bulk. The grocery store I use just got in 900 dosages, that is right next door to the pharmacy the received 200 vacs.

     

    The reason why doctor's offices are not getting the vacs is because Unky Sam thinks mass immunization can be better accomplished by have shots available without an appointment. $15.00/shot.
    8 Jan 2010, 05:07 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (6282) | Send Message
     
    Author’s reply » My wife got her H1N1 yesterday at Walgreen's.
    8 Jan 2010, 05:12 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (6282) | Send Message
     
    Author’s reply » Hi Guys
    I have added quite a bit more information onto the Nvax shorting story. We (HT and User) have excellent evidence that the excessive shorting was started by the Nvax shelf offering (See Figure Two).

     

    When that excessive shorting started because of the shelf offering, it amplified a self reinforcing feedback loop (See Figure Three). The big-time shorts borrowed the stock and sold it. This reduced the price. The regular investors looking at their technical charts picked up on the trend, and they started selling their stock. Other shorts seeing the downward trend also starting shorting the stock. This reduced the price yet more, and down it went.

     

    What stopped the feedback loop (Figure Three) from taking the stock to zero is that very likely once the stock went below 3.3, other investors starting buying the stock. That reduced the downward trend. As the stock keep going down, more investors bought it. That is a feedback loop as well. Right now the stock is where it is because the two feedback loops are in balance. So the in-flow of money is balancing the out-flow. I have heard those terms before, but I never thought of them in terms of self reinforcing feedback loops. That's one of the cool things about this… The analysis is teaching us a lot about the stock market.

     

    In the past I heard about shorts, but I had no idea there were different TYPES of shorts. I also used to think that people that shorted were somehow bad… now I see them as more smart than bad. Now I am looking very hard at Nvax management. Why did they do what they did?

     

    They could have made a ton of money if they shorted their own stock. Was that part of the deal with respect to getting the money in the first place? Alternatively, was management under the gun. A gun of needing capital fast so they would not miss the H1N1 production boat? Lots of questions I never would have thought to ask prior to looking at HT's data.

     

    I suspect the reason the stock is still heavy in shorts is that some of the shorts overshot. They are basically in a negative pump primed position. I think they will stay in that position until something happens. My guess is that these over-shorts are big investment firms and hedge funds. Companies that have access to after hours trading. That is why they are not particularly worried. If something happens, they can move before the rest of us and minimize the damage.

     

    We think we will be able to extend our analysis to other stocks. For example we suspect the average slope of the line that links percent shorts to the price of the stock varies with different stocks. We would like to know more about the basis for that difference. For example, we suspect degree of price variability in a stock is associated with the size of the percent shorts to stock price association.

     

    Could it be useful to group stocks by the strength of the association between stock price and percent shorts? These are some of the questions we hope to pursue further.
    10 Jan 2010, 06:38 PM Reply Like
  • tripleblack
    , contributor
    Comments (13581) | Send Message
     
    Fascinating stuff, User and HT. Cudos.
    10 Jan 2010, 06:50 PM Reply Like
  • H. T. Love
    , contributor
    Comments (19441) | Send Message
     
    User: We may have a chance to test your "shelf" hypothesis. HYGS issued some junk this A.M. (see this comment

     

    seekingalpha.com/autho...

     

    which is in "Quick Chat #3: Start 1/7/09 after Market Close" here

     

    seekingalpha.com/insta...
    ).

     

    Differences that might affect things are that it is a micro-cap, low trading volume stock and has that "full rachet" protection (see

     

    seekingalpha.com/autho...

     

    for an explanation).

     

    What do you think? Shall we pursue it? Maybe try to predict some change in shorts? Or price out into the future?

     

    HardToLove
    11 Jan 2010, 10:56 AM Reply Like
  • H. T. Love
    , contributor
    Comments (19441) | Send Message
     
    User: may have first indications that your hypothesis holds water. On 9/23, the highest volume in 200 day chart, 2.93MM shares traded, an up day with a big range $0.54-$0.63. Today (Mon. 1/11/2009) by 12:30 P.M. Eastern we had already done 2MM as the price plummeted to $0.40.

     

    I can't believe this volume is strictly current holders getting frightened of the new issuance and dumping, in light of the recent two pieces of decent news.

     

    So my first thought is your management only valued the shares at $0.40 and the shorts said "Aha!" and jumped right in.

     

    It'll be interesting to see the short report of 1/31/9, which will reflect this week.

     

    Thought: with share price sitting right the $0.40, the management-set price, maybe there's no opportunity for the shorts here? NVAX was different in that it was above the management-set price by substantial $, although the % difference was probably not as great.

     

    HardToLove
    11 Jan 2010, 12:36 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (6282) | Send Message
     
    Author’s reply » Me too on that report HT.

     

    (SVA) is up over 10% today, and I can't find any news for the move. One possibility is that the smart shorts are closing out their positions because they know there is going to be a strong 4th quarter. Maby that short report on 1/31 will let us test that. Another possibility is that some kind of information has leaked and its attracting interest.
    11 Jan 2010, 02:06 PM Reply Like
  • Mayascribe
    , contributor
    Comments (11197) | Send Message
     
    User: Actually, SAV's surge may be because of investors expectations of positive earnings.
    11 Jan 2010, 02:12 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (6282) | Send Message
     
    Author’s reply » Yupers Maya.... that would be part of it. New money coming in on anticipation of positive earnings, and shorts closing their positions. That might account for the strength of the move.
    11 Jan 2010, 02:45 PM Reply Like
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