Long/Short Equity, Contrarian, Short-Term Horizon, Dividend Investing
Contributor Since 2008
I am a contrarian trader normally and that often means shorting into stocks that are moving higher. Sometimes they are moving higher very quickly and this week has been especially full of strong moves. yesterday SY moved higher quickly and I was able to make a nice gain shorting it. Yes shorting it even though it was bought out.
Today was an even bigger surprise than SY as some unknown to me stock that is never on my radar pops up and is moving higher very quickly on a massive volume increase. I waited until my system said to short and I did but from a dollar point of view I kept my trading very small as these kinds of stocks are like playing with fire when they are under $5 and this one was giving off plenty of heat.
What had happened was that about a half hour before the closing bell HAUP issued a press release that they updated software for some of their internally inserted video cards so that they would be able to stream TV shows to Apple products over the Internet. They can also stream the shows to other items (maybe as it is not totally clear to me or to my geek brother which I will talk about later). The key to this statement in my opinion was that this should be a great new wonderful thing that will get people to rush to the store to buy as a "must have" item for their ipods etc.
At the time I first shorted HAUP the reason why it moved higher was not important to me as long as it was not being bought out and since it wasn't I shorted it. Normally I would not have thought more about it but it happened to be at the end of the day when I closed it out as I didn't want to carry over a sub $5 stock that I shorted when I could take a gain on it today. As expected in after hours trading it was pretty active right after the bell and since it was still on my charts I decided to take a look to see what all the hoopla was about. I did a search and looked at the press release and immediately thought that something was not right here. This is a company that is reporting losses and the stock is moving higher due to a consumer grade product enhancement that most people will not be interested in even if they do like the idea. The more I read and the more I looked at their simple website the more I felt that what I was watching was a pump. As a result I started shorting once again in afterhours trading and made another gain but then I had to go home so I left my office and while driving I was trying to figure out what the big deal was with this stock. I seemed to be worth a dollar and I wouldn't say that at a buck the price is out of line but to make a jump like it did on this news??
So I called up my super geek brother who has everything that is geek and he even has more than one of the cards that are sold by HAUP which at first I thought gave HAUP more credibility until he said "I don't use them though because they are difficult and I would hate to be the average person who doesn't know much about computers trying to deal with them". I said to him that he should forget about the stock price or the company and just tell me how important is this product to the marketplace. He said that the slingbox was much more user friendly and better known and that Pinnacle was really good as well. I asked him if he believed that this product by HAUP would displace the other two in the marketplace and he said that the only interesting thing about the HAUP product is the news release to which I laughed because that was what I really wanted to know but didn't directly ask.
So I am talking to him on the phone about this product while at the same time watching the market in after hours tradin with less than an hour to go and I see some very interesting things on the net including a SEC filing of notice of non-compliance with NASDAQ and the listing requirements. It appears a few months ago (press release date of 11/23/09) that our friends at NASDAQ sent HAUP a letter that HAUP may become delisted. The press release states that HAUP has 180 days to get the bid price of the stock above $1 or risk getting sent to the pink sheets which is often a final death blow for a company in raising money through stock sales. That 180 days just happens to be on ...........May 17 2010 which is this coming Monday.
So with about 30 or so minutes to go in the trading day they issue this press statement that they have this great new software upgrade and they make it very clear that they product will play nicely with Apple products and bam no time to think and do due diligence just the higher volume and price and the music chairs begins which is a very fun game to play until the music stops and your looking for a buyer of the stock you have and there is no one that wants it for a price even remotely close to what you paid for it.
This appears to be a very calculated desperate measure to get the stock above $1 by Monday and it appears it will work. While I feel that the product is not going to take away market share from products that are easier to use and DO NOT require opening up your PC and trying to make a new video card work with the rest of your system I would guess it will take longer than Monday for the price to fall back down to under a dollar a share. Perhaps during the next earnings release if the enthusiasm of today is not reflected in the earnings we will see the price back under a dollar but that is fine as this buys the company some time. unfortunately for those that bought the stock hoping and maybe praying that they could get a double or three banger out of this dog it appears they may be changing their hopes into fear very quickly as this appears to me to be nothing more than a method to get people to pump up the stock price long enough to get the company past Monday.
With not much longer to go in after hours trading I started to once again short this stock expecting it to maybe fall on Friday but with a confident thought that Monday or Tuesday the register will ring if not before. The best part is the lack of volume. Once the selling begins there appears to be no one that is going to be able to keep this from giving back much of the gain pretty quickly. These sub$5 stocks don't enjoy large short interests to help stabilize them when they do fall. This means they fall hard and fast some of the time
Here is the link to the SEC filing www.faqs.org/sec-filings/091123/HAUPPAUG...
Here is the press release, notice the timing of it with 27 minutes to go in trading. This was no accident in my opinion www.prnewswire.com/news-releases/hauppau...
Here is the Yahoo Finance income statement page. Especially take a good look at the operating income and losses for the last three years. It is not really going in the direction one who is buying a stock would like finance.yahoo.com/q/ks?s=HAUP+Key+Statis...; More troubling than the profit (hard to believe but in this case it is) take a look at total revenue over the last three years. This company based on the link shows that they have lost almost half their sales in the last three years with a a gross profit to match.
If you bought / own this company and you have a chance to find a buyer to make you whole or get a gain you just may want to think about getting out while you can and not wait until you have to.
While I am short HAUP I am also a full time professional trader and I would never suggest someone who doesn't fully understand the risks of shorting a low price stock to short it I would suggest giving a lot of thought and research into this company and what they are doing if you own it.
Disclosure: short HAUP