Update #2: Since the time I wrote this post, I have recouped most of my losses mentioned below by shorting CNLG again from 4.38 to 2.85.
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First let me say this: Stock market is a scam. I’ll repeat, the stock market is a scam. Accept it and find a way to make money out of it. There is no room for whining. I’m not going to whine.
I lost about 70% of my position (Update: That’s not exactly right, please see the note at the bottom) today on my CNLG overnight short. Yet I feel free as a bird, not concerned at all. Some of you might remember I wrote pages about my mistakes on EONC trade. Here, my loss % is bigger but there’s nothing to write about. Because I did everything right according to my system.
The other reason I’m not concerned is, I know for a fact that I’ll make most of this money back on the exact same stock. In fact I already started.
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So, since I believe I was right, I just want to explain the scam these guys have been doing for years. It’s a family business, the Benou family has a company with a tiny float. The company itself has little to no value. It’s a tech company with 8 production employees. They have gone through 4 reverse splits. If you look at a monthly chart you’ll see prices like $2000. That wasn’t the real price. That’s reverse split adjusted. Yes, they are -that- bad-.
- Every now and then, the directors (mostly the Benou family) award themselves shares. Here is the most recent one for Mr. Marc Benou(note how many shares are rewarded, we’ll get back to that) : http://msnmoney.brand.edgar-online.com/DisplayFilingInfo.aspx?TabIndex=2&FilingID=6977605&type=convpdf&companyid=8837&ppu=/Default.aspx%3fticker%3dcnlg
- Then they release some fluffy PR about their (probably non-existent/non-feasible) product, “GlowWorm”. Here is the most recent one: http://finance.yahoo.com/news/Conolog-Announces-Start-of-bw-604947518.html?x=0&.v=1
- The stock spikes thanks to tiny supply, then the insiders start selling the shares they were rewarded.
When the stock spiked last week, I knew this was the plan. I called it perfectly and the stock went down to 1.70s from its highs around 2.70s, in the same day.
Then last Friday there was another spike. I saw some buyout rumors which are of course ridiculous. So I thought this was probably the last phase of the dump, shorted at a great price and was up by the end of the day. Then I thought we were done and Monday would be the death spiral. So I held overnight.
The Benous had a better plan. Since they know their low float stock is going to be a toy in daytraders’ hands, they released another fluffy PR about a 1.9M order, which is payable over a year. Meanwhile, they paid a pumper (WallStGrand) $120K out of company’s remaining (drumroll please) $466K. http://bit.ly/bi7kR2
This caused a huge run, which I was totally not ready for. I took a loss but reshorted near the top. Why? This is the fun part:
Remember how many shares the Benous were awarded? That’s right, 210000 each. Scroll to the 9th page here, how many shares are they selling now? Yes, 210000. So, everyone and their mother in the company is selling all awarded shares in 2009 incentive plan.
I should remind you that this is not a secondary. The company is not raising cash here. This is funny because I fully expect them to do that, like, tomorrow or something. This is from the footnotes of today’s filing:
“However, we may need to seek additional financing sooner than we anticipate as a result of factors including but not limited to the following:
o changes in operating plans
o lower than anticipated sales
o increased operating costs; and
o potential acquisitions
However, additional financing may not be available on commercially reasonable terms, if at all.”
So yes, given the track record of the company, I am not concerned at all. Most likely a dilution will come soon and I assure you that the stock will be trading below 2 in a week. Can it go higher before that? Of course. Can I lose more on this stock? Of course.
But that’s not the point. This is how I play these things, it is riskier than most people would stomach and I accept that sometimes things don’t go my way. Still, I make sure I have great reward potential with this great risk, that’s the reason I’m still up a decent amount for the year even though I lost 70% on one trade.
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So what’s next? We know for sure that the company won’t release any more fluffy PRs. Insiders wouldn’t have sold their shares otherwise. So it’s just a matter of how long daytraders can keep this thing going. Given the history of the stock, I’ll go ahead and say odds are on my side.
As I said in the beginning, the stock market is a scam. But don’t be surprised when you discover that by losing money. This is the way it is, from Goldman Sachs to the crappiest pinksheet stock. I am not pissed, I am actually grateful to them because when you know the games that are played, you have got the edge over others.
Disclosure: Short CNLG.
Note: 70% is not my actual loss, that’s an eyeballed number looking at Friday’s close (where I was up). So it’s the % loss in my first entry from my unrealized gain level. All my entries/exits can be found on my twitter feed.
