“Mama said they’rd be days like this…” Does this make you my mother, Wolf? Yikes!
It’s been over 48 hours now since the dip on Friday, and with ear to the ground I have yet to hear a whisper of anything negative. This is totally consistent with what I believe happened on Friday, which, IMO, had nothing to due with fundamentals and everything to do with various forms of manipulation. For the purpose of simplicity in this post (as it will be rather long) I will categorize my thoughts under various sub-headings.
HOW IT HAPPENED
This has certainly been commented on extensively in the last couple days. There is one thing that needs to be stressed and understood here: There was nothing out of the ordinary with the sell side on Friday, it was a problem with the buy side. There was a 50-cent gap on the bid side, as the price dropped from $3.05 to $2.55 in the last minute of trading. In fact if you look at the MD at the close there was only 500 shares bid at $2.00, below the 14k on the bid at $2.40. Everyone had g one home for the weekend, and the stock was ripe for manipulation.
Theoretically, if any one of us had a bid for 5,300 shares bid at $3.05, that is where the stock would have closed. Possibly, if only 3,300 shares had been on the bid at $3.05, that’s where we would have closed, since the 2k sold by CIBC were likely a stop being hit below $3.
How pathetic! Somebody saw the opportunity to further their financial interests and took full advantage of it.
WHY WAS THE DIP NOT NEWS RELATED?
Technical Perspective
For those who think there was informed selling, take note of the top 5 sellers on Friday (excluding the cross after the close):
TD (07) 23,000
DS (02) 9,200
CIBC (79) 4,200
Yorkton (11) 3,000
Octagon (64) 2,000
Those are the top 5’s volume for the whole day. I ask you, does that look like informed volume? Consider that we are in a draw as well, with TD as the most prominent Amigo. TD’s daily sell volume over the previous 20 days was 19.2k. In other words, TD’s sell volume on Friday was right within the average range. So given that we still have not seen the draw announcement, Friday’s TD selling included a large percentage of Acqua selling. Take out Acqua’s selling through TD and leaves an even more pathetic amount of actual shares sold which could be considered as insider selling.
Just for sake of argument, let’s suppose that Acqua selling through TD and DS (another recent Amigo) was 50% (it’s actually likely more) of their selling on Friday. That would leave TD with 11,500 of real selling and DS with 4,600 of real selling. That leaves the total amount of shares sold by the top 5 sellers on Friday at 25,300, and that is for the whole day!
Another issue to consider is the 14k left on the bid in the after-market that went 50 minutes without being touched. As Wolf stressed, those 14k would not have remained more than a minute at that price had bad news hit the street. You can damn well bet that big money investors worked their connections in that 1 hour period after the close to find out if there was anything wrong. The fact that NOT ONE SINGLE share, then sold to that 14k for the next 50 minutes suggests that the big shareholders uncovered nothing.
So, for bad news to have been the motivation for the tiny selling and subsequent huge dip, ONE little shareholder must have become privy to this news in the last minute of trading, with NOT ONE larger shareholder being able to find anything else out, even in the next 1 hour after the close. Highly, highly, improbable.
I was also just informed by a fellow poster, who monitored the trading on a real time market depth ticker, that TD started playing games on the offer side around 3:50pm, by flashing changing offer sizes in order to sniff out support and potential stops that may be in place. He commented to me that only a professional trading system could be do that, which rules out an investor who got wind of bad news. This appears to be professionally manipulated with the compliance of our MM.
Fundamental Perspective
There is one type of news that would warrant a dip to the low 2’s, and that is an FDA rejection – HC would not do it since it’s totally discounted by now. IT IS NOT AN FDA REJECTION !!!
We currently have clinical trials for Pennsaid ongoing in both Canada and the US. The FDA has approved and sanctioned the trials in the US, and though almost certainly for marketing purposes, the FDA would not reject an NDA in the middle of trials it has allowed to commence, especially trials of such large sample size (n=500 per location, if my data is correct). The FDA could always approve during such trials, but would certainly await the results if they had any inclination towards a negative bias.
Furthermore, as I pointed out on SH and SI a few days ago, the ImClone hearings suggest that surprises do not happen with the FDA. NDA sponsors are steered along one of two diverging paths from the day the review begins. The further along in the review the more polarized the path becomes and the more the sponsor becomes aware of the ultimate destiny of the drug. Rebecca has indicated that Dimethaid has been steered by the FDA toward approval for more than 6 months now, which would make a sudden change in that direction almost impossible.
From a CBS Market Watch article posted on SH, by MichaelZ, a few minutes ago:
"6) Advisory panels: If the agency has questions about a drug's safety or effectiveness, one of its advisory panels will convene after a marketing application has been accepted. These panels are made up of experts in the relevant medical specialty. They hold a hearing on the drug and vote on whether it should be approved. The recommendations aren't binding, but the agency typically relies heavily on the panel's input. If the FDA doesn't schedule an advisory panel on an application, that's often interpreted as a positive sign because it suggests the agency doesn't have major questions." cbs.marketwatch.com{479651A3-2440-45D0-8AB0-02D0645D3DD8}&siteid=mktw
Given that we have not been scheduled for an advisory commitee meeting, it is almost certain the FDA is not at the stage where we could be rejected.
If there were news that the FDA NDA was falling apart, getting out that the $2.40 price on Friday would have been an incredible opportunity for anyone. Nobody bit.
CURIOUS HAPPENINGS
The big question that needs to be asked is “where the hell was the market maker?”
Last week I was about to post a message on SI commenting on what a clever job Independent Trading (84) was doing at managing the price between $3.30 and $3.50. With as little direct influence as possible they were able to manage the price while Acqua was finishing up the latest draw.
Then on Thursday, as I was watching my streaming ticker and market depth, a curious trade popped up that caught my attention as rather suspect:
2002-06-20 12:50:20 3.30 -0.11 7800 7 Green Line 84 Independent Trading
TD (07) bought 7,800 shares from Independent Trading (84) - an odd purchase in itself, since 84 usually only buys/sells smaller lots as part of other transactions. What was very strange though was that those shares never were bid or offered for on the open market. I had my eye on the streaming market depth and those shares were never shown. The first I saw of them, they were recorded in on the transaction side. The obvious conclusion here is that somebody at TD had been in contact with our MM to arrange the transaction outside of the open market.
The next day we again see our MM doing a stellar job at managing the price. Then all of a sudden in the last 5-10 minutes we see them close their eyes, while who else, but TD, precipitates a plunge on a few shares that should have been absorbed by the MM. Let me make it clear that the job of the MM is not to move the price to where they want it to be, but to facilitate an orderly trade in the direction of the market bias. The market bias was definitely down, but not the magnitude of that bias was not significant. Therefore our MM had an obligation to keep the price in the general range it traded during that day with perhaps a 5-10 cent drop toward the end, due to the small sells.
Questions need to be answered about this, as IMO, THIS IS THE REASON we went down on Friday.
MOTIVATIONS
Any good detective knows that the first question that must be asked when solving a “who dunnit?” is, “who benefits?” While the motivation is clearly financial, the benefactors can be several. Let’s consider the following possibilities:
Acqua Wellington
IMO, the first possibility is the most likely and the smoking gun points directly to Acqua Wellington. We have been in a draw for several weeks now. My calculations had me estimating that the draw was to end this past Wednesday, June 19. Clearly I was off by a few days, which I usually am. In any case, we are right near the end of the draw and the chances were very good that it ended Friday (June 22).
A few days ago, I posted the fact that over the past couple weeks TD (Acqua) was closing the price low almost every day, with only the few shares necessary to do so. It was like clockwork everyday – if 500 shares were able to close it 10 cents lower, then TD did not miss the opportunity. This was clear manipulation, and they were getting away with it every day based on lack of liquidity. Then the next day, they would sell very few in the mornings, invariably allowing the price to drift up where they could sell the majority of their shares in the day’s higher range, only to repeat the low closing at the end on a few shares.
Here is the link to my post: Message 17625244
What we saw on Friday was just an extension of what we’ve been seeing for several weeks. Only this time they took it as low as they could, again with relatively few shares.
So how does TD benefit from this? Well, first consider the trend I just described: They sell most of their shares in toward the higher end of the daily trading range and then close it low. Now consider the details of the Acqua deal: The issue price of the shares to Acqua is based on the 20 DAY VOLUMETRICALLY WEIGHTED AVERAGE CLOSING PRICE, less 8%. No, it’s not based on the price Acqua sold those shares at, but on the closing price. So while Acqua is already guaranteed the 8% spread on the closing price, every penny they can sell their daily amount above the closing price is an extra premium that Acqua is making as a premium over and above the 8%
Established - IT IS IN ACQUA’S INTEREST TO HAVE THE DAILY CLOSING PRICES MUCH LOWER THAN WHAT THEY ARE SHORTING THEIR SHARES AT.
Despite the low closing prices, it is still in Acqua’s interest to manage the trading range during the draw, since they likely have to maintain the average price over a minimum set in the agreement, which in my opinion was $3.50 (just a guess). However on the last day of the draw (as I suspect Friday most likely was), they no longer have to worry about maintaining a stable price range and can use whatever tricks they have up their sleeve to their fullest extent.
Now here is the smoking gun evidence in terms of the benefit to AW. If the draw did in fact run from May 27 – June 21 (Friday), then lets look at the 20 Day VWACP on June 21 vs June 20.
Volumetrically Weighted Average Closing Price
- As of Thursday, June 20 - $3.79
- As of Friday, June 21 - $3.67
In other words, Friday’s close increased the spread between the price Acqua shorted their shares at and the price DMX will issue Acqua shares at, by $0.12/share. If the draw happens to be for $2 million then the amount of shares involved becomes about 570,000. Multiply $0.12 x 570k and you have the motivation for Acqua knocking the price way down on the last day of the draw – A GAIN FOR ACQUA OF $68,400.
Just to add my own personal opinion to this FACT, I believe this is the last draw we will ever see from Acqua. The price can no longer support Acqua drawdowns, especially in the low liquidity summer, and I think Rebecca is exploring other options. For this reason, Acqua did not give a damn what they did to the price on their exit. Why not make an extra $68k as a parting shot?
This to me, is the most likely explanation for Friday.
”You gotta sell a little to buy a lot”
That quote has stuck in my head since I first heard it years ago, in reference to the act of shaking a stock out when you want to accumulate a large position. This is obviously most easily done with thinly traded stocks, especially in bear markets where the insvestor psychology is one of fear.
During this last draw, I am of the opinion that we saw several small-medium positions being accumulated ($250k position by house 14, a small chunk by Refco, a sizable amount by TD, and a daily amount of 2,500 through DS sell and crosses, for almost the duration of the 20 day draw). I am of the belief that institutions are nibbling at DMX. On the other hand there has been no evidence of any institutional selling other than Acqua.
For this reason, it’s very conceivable that any institution wanting to accumulate a significant position would want to shake the price out first. By selling 6,000 shares somebody just created a massive opportunity to put a bucket out and collect tons of margined shares that will just fall to them in droves. The reality of the world is that if there is an opportunity to make money somewhere, somebody will take it. What an opportunity this was!
If it was not Acqua that did the damage at the end of the day for their own gain, then it was surely a professional trader acting on behalf of an institutional investor looking to get in.
IN SUMMARY
I may regret this whole post tomorrow – nobody knows what the morning will bring. However, I remain 99% confident that the business plan of Dimethaid is clearly intact and being executed. I believe that we have seen the end of Acqua, and that we will either make it through to the partner money or take a small amount through another form of financing like a private placement.
I have all the faith in the world that we will get FDA in the next month or two, and that WF10 results will be highly successful.
This in my opinion, is a situation which has done damage to investor confidence, but those who can see through the massive distractions and noise will see the prize still sitting at the end of the road. It should be a tough few days ahead, as the margin calls roll in. I expect we will bounce tomorrow on very high volume, with a close just below $3. Hopefully with Rebecca’s reassurance in a pre-open message, the stock will be back above $3 by the end of the week.
This just may be the moment of maximum fear and capitulation that is needed to reverse a trend that has been in place for over 2 years. I think Rebecca’s hand will be forced to reveal a little more about where we are on the business plan track. This should confirm for us how assured the company’s future is, or if we are on shakier ground than anyone expected. The share price should act accordingly over the next few weeks.
Good luck all, and thanks for reading this far.
joe |
