Okie dokie, last time we talked about the range of high ownership between $1.80 and $2.10. So, in the name of consistency, let’s talk about it again.
There it is on the daily, and we are right in the thick of it. When we first talked about this range, weeks ago, we said it would be rough to get through without some intervention. We never did get an intervention, but have somehow eased our way into the range and remained without it. This slow grind through this area was expected, but holding our ground organically is a pleasant surprise.
To help visualize what’s happening with the low volume in this range, imagine this, that volume profile is a fish finder and the market makers are the fishermen. Guess who’s the fish? By looking at their fish finder, they know where the fishing hole is and start casting away into it. The fishermen start on one end of the hole and move through it to find where the fish are biting. In this case, they are catching some, but the persistent low volume shows that the fish aren’t biting much. So, they keep moving through the populated fish area trying to get them to eat the damn worm!
I thought there would be more selling in this area, but there doesn’t seem to be as much as I expected. That’s a good thing because the fishermen just have to keep moving up the bank trying to get them to bite. The hope is that eventually, they will come to the conclusion that the fish just aren’t hungry and move up to the next fishing hole.
It’s no fun thinking of yourself as a fish, and not at the top of the food chain, but in these waters you are dinner.
Here is the daily again showing that channel developing. We had a bit of a scare when it tested $1.68 again, but has recovered nicely since. So far so good! Today’s candle wasn’t the prettiest thing. I don’t like the long upper wick, and seeing that we are right in the middle of the channel, its not impossible that we could have a rough start to next week. The 20DMA is right under us around $1.85. I’d like to see that hold, but if it doesn’t, it’s not the end of the world as long as it stays relatively in the channel.
The BOP is still flip flopping between bullish and bearish on the daily, but that’s not unusual as the fight for dominance continues. Basically, everything is still going to plan. In fact, I wasn’t even going to write anything because everything was so status quo from the last update. But then…
The Great Short Interest
I will start by acknowledging the fact that my perspective on what is going on is a bit alternative. The only person I ever expect to completely buy into it is me. In fact, I’m not trying to get anyone to buy into anything. This is just things as I see it and I’m putting it out there for my own reference and in case anyone happens to find any of it useful. If this were the music scene of the 80’s, most people watching this thing would be the mainstream hair glam bands. They would be the Bon Jovi, Def Leopard, Poison or Motley Crew type. I’m more like Depeche Mode or The Cure. I’ve taken the road less traveled, and therefore, probably less popular.
Whereas it seems the majority of people prioritize the script numbers and revenue, those numbers aren’t as important to me. I’m all about the SI. The SI gives me a clue to what the smart money is doing, and following the smart money is the name of my game. If anyone has been following along this whole time, you will know that’s my whole deal, and for better or worse, have analyzed their movements extensively to the best of my ability.
Somewhere along the line, I’ve admitted that the persistent high SI had me stumped. It was the one nagging thing I just had no explanation for. But now, in the last report, it finally made a significant move down. The SI went down 13% as of 2 weeks ago. Granted, it’s still high, but it is finally showing signs of relaxing. Now we get to twiddle our thumbs for another 2 weeks to see if this is actually the start of a trend or just a one-hit wonder.
There are several reasons why I think this turn of events is very important, more so than script numbers. My whole premise in following smart money is that they know more we do, and therefore their movements are made based on much more reliable information than any of us retail have.
At this point, we all know earnings are set for August 9 and we were all told there would be some strategic update announced then, or before. What we don’t know is if this announcement will have a good or bad effect on the share price, and that share price is the bottom line. Who are we kidding with all our ranting and raving about best in class drug with less pee pee out the poop shoot. We, even me, just use all that as some justification for making the decision to buy this, but in the end, unless you are actually a patient, no one really gives a shit… pun intended. All we care about is how this upcoming even will effect our portfolio balances, end of story.
So, we want to know how this news will effect the share price, no one really cares how it will effect this company outside that. Guess what? That’s all the smart money cares about too, and this decrease in SI gives us a clue as to how they are reacting to the upcoming news.
A couple of posts ago, I did a pretty extensive exercise trying to figure out why every break out set up broke down. This is when we learned about CVI and their maneuvers. At the time it was just an FYI to satisfy my curiosity. Today my big question is if this decrease in SI is for real, or just some one-time anomaly. I think that CVI investigation will now prove more valuable than it was intended to. Of course, we won’t know any of this for sure until the next report and further into retrospect, but if you want to make a move now while the price is still below $2.00, this could help us be more proactive instead of just reactive.
Before I get into it, we need to get a little history on the change in SI and see when the “core” short position was established and how much it was.
Here is a screenshot of an archived version of Nasdaq.com. I highlighted where the core short position was established. To me, this is what set the whole down trend in motion. This is where smart money built up their short position and then manipulated it down to where we are today.
As you can see, between January 2017 and May 2017, a short position of approximately 30 million shares was built up. It all started right around the time they got their initial FDA approval. This core short position has persisted from May 2017 to now, July 2018. I’d guesstimate they have somewhere in the neighborhood of a $5 cost basis on that position. That would be about a $150,000,000 position. If they are covering, and say finish up with a $2 cost basis, you’re looking at a $90,000,000 profit. Hence the term “smart money”, and we shall follow.
Those cost basis are just guesses, but probably not too far off. If they are indeed struggling to cover it with a $2, or even less, cost basis, it would also help explain why the market makers are holding it for so long in this price range.
One more thing to point out before I move on. After 4/28/17, it took a good dip in SI. In fact our latest SI is the lowest its been since that 5/15/2017 report. However, back then it moved back up to the high 60 million range. I don’t know why, other than there was an established downtrend back then. But, that just goes to show the risk here. If it moved back up then, it could do it now. I think the big difference now is, we are building an uptrend as opposed to being in a downtrend. Because of that, my opinion is that it won’t build back up to high 60’s and instead try to continue down to that 30 million range where it started.
Anyway, I’ll get a little more into that in the conclusion. For now, let’s continue with why I don’t think this is a one-and-done dip like the one in February was.
This is my own little chart I’ve been using to track SI in relation to dark pool activity and price. Fortunately, we are only concerned with that top SI chart, so ignore the rest. So, the question is, how do we know this latest drop in SI will continue down unlike the drop in February where it just stopped? I believe because that decrease in February was meant to be a one-and-done decrease when CVI exited their short position. You can see I annotated the graph where CVI got in by shorting and got out by covering. You can also see how at no time that core position, which is highlighted, ever changed. The difference this time is that the core position did decreased. The position that was built to start this share price demise seems to now be ending to start a share price rebirth.
The next SI report will be 7/24, and coincidentally, the one after that will be 8/9, the day earnings are also reported. I have no idea if they plan on covering the entire 30 million, but if so they have about 20 million left to go in less than a month. I suspect the next SI reports will show more significant declines. Perhaps something will happen between now and then to drive volume for them to cover larger amounts into.
Here are the main pressing questions that are up in the air for me right now:
- I think we are in Wyckoff Phase D where the low has been put in and a new uptrend starts to build. Is that correct?
- Earnings are 8/9 by which date we will have a binary event. Will it be good or bad?
- Why is the SI not coming down?
I have others, but those are the main ones that indicate the longer term outcome of this mess. This significant drop in SI, and the belief that it will continue to drop, answers these questions.
- Yes, we are in Phase D and the low is in. Smart money wouldn’t be covering if it weren’t and a new uptrend wasn’t being established.
- It is more likely to have a good outcome. An outcome that will confirm Phase D and send us into the final mark-up phase E.
- It is now.
Before we get too carried away though, the SI is still high despite the decrease. The fact that it will continue to decrease may be based on some solid reasoning, but it doesn’t mean its correct. It is still a risk to base decisions on what I’m saying. I’m the only one who should be taking this hook, line and sinker. I wouldn’t expect someone who hasn’t been so involved in this to just do it because I, or anyone else, says so.
Be that as it may, I think good things are coming, and if not, I’m about to get an epic ass kicking.