A Lundin Short Squeeze?

Just to refresh - according to Investopedia, a “Short Squeeze” is a situation in which a heavily shorted stock or commodity moves sharply higher, forcing more short sellers to close out their short positions and adding to the upward pressure on the stock – etc,,,

So - at June 13, 2014 the five largest short positions on the TSX were Lundin Mining Corp (LUN) 57,731,739, Manulife Financial Corp (MFC) 48,856,265, Bombardier Inc  (BBD.B) 47,286,537, TD Bank (TD) 39,832,937 and New Gold Inc (NGD) 35,183,624.

One of the “old fashioned” technical plays is to seek out stocks with high short positions – in this case Lundin at 57 million shares is about 10% of the O/S shares – and see if the stock price is displaying price out-performance vs. a broader index such as the S&P/TSX60 index or a sub sector such as the TSX Metals & Mining group. So we need two conditions in order to generate a short squeeze – 1) lots of shorts and 2) strong relative performance vs. a relevant index. Our chart today is Lundin Mining – daily plotted above the broader TSX60 index – and as we can see by the lower relative perform lines – the current buying pressure could “panic” the shorts to buy back or cover their positions. One other observation – the best short squeeze opportunities are in stocks that are currently out of favour – and as we all know - everybody hates copper stocks.

A Potash Short Squeeze?

According to Investopedia, a “Short Squeeze” is a situation in which a heavily shorted stock or commodity moves sharply higher, forcing more short sellers to close out their short positions and adding to the upward pressure on the stock – etc,,,

On the topic of short sales a recent item in the Globe Report on Business - NUMBER CRUNCHER - Twenty stocks that short sellers are betting against - Tim Shufelt - INVESTMENT REPORTER The Globe and Mail Published Monday, Jun. 16 2014, 7:55 PM EDT

Quote: What are we looking for? Stocks that short sellers are circling. (I had to cut out a lot of fluff here) For investors who are also beginning to feel more bearish, we looked for the stocks attracting the greatest levels of pessimism.- and - How we did it - We first screened for stocks listed on Canadian and U.S. exchanges with the greatest short interest – and - We wanted only those stocks with deteriorating sentiment, so short interest had to have increased over the past month. And we excluded stocks with a market capitalization of less than $100-million.

What we found - eight (Canadian) names among the top 20 shorted stocks. The biggest among them is ATS Automation. Other familiar Canadian stocks that shorts are targeting include Leon’s Furniture, Great Canadian Gaming and Rocky Mountain Dealerships. This list could prove a good starting point for investors looking to run with the bears, but further research should be done before making any investment decisions. End Quote.

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OK so after all that work we only get tiny list of names that trade by appointment – run with the bears? - A total waste of newsprint..

In reality I would think short sellers are sophisticated investors who have done their homework and so why not look at the Largest Short Position Decreases which at May 30, 2014 were Bombardier Inc (BBD.B), Talisman Energy Inc (TLM), Potash Corp of Sask Inc (POT), Encana Corp (ECA), National Bank of Canada (NA) and TransCanada Corp (TRP) – Take a look at our Potash chart – a follow up from my Torpedo Stocks: blog post on Wednesday, July 31st, 2013 – now POT is above both the 10 & 40 wk M/As and has positive price MOM – and – is a relative outperform vs. the TSX Materials sector – no wonder the shorts are covering

Gold Stock performance is relative

In a Getting Technical market letter - Interim Update December 18, 2013 GT1419 – I selected two gold stocks to be held for recovery through 2014. They were B2Gold Corp (BTO) with a price at Dec 17, 2013 of $2.19 and Osisko Mining Corporation (OSK) with a price at Dec 17, 2013 of $4.65

I displayed a weekly chart of Osisko Mining Corporation (OSK) that was displaying several bullish technical signals – a bullish (youthful) weekly cycle and the important recent higher (October) lows relative to the prior lows of mid 2013. A higher low in a down trend is important – on a weekly chart – because a higher low could be a signal of a positive trend change. In other words the brutal end of December tax loss selling had not sent these names down to new lows.

We can apply the same relative argument today against the gold and silver miners because although they are birds-of-a-feather many do not fly together as displayed in our Silver Wheaton vs. Yamana Gold chart – go with the higher lows. Other lower-low names are Alamos, IAM Gold, Kinross and SilverCorp

Is your advisor just a Salesman?

I grow weary of the business media and investor advocates referring to investment advisors as “salesmen”, as if that is a bad thing. Last week a piece on bad investment advisors appeared in the Globe and Mail – Report on Business “How can investors protect themselves from financial fraud? John Heinzl - INVESTMENT REPORTER The Globe and Mail Published Friday, Jun. 06 2014, 5:21 PM EDT - the in-print heading was “Ensure your advisor is not just a salesman.” Heinzl features Stan Buell who “knows what it’s like to be the victim of a crooked financial professional.”, because – “Years ago, he lost about $1-million to a broker who made unauthorized trades on his account and engaged in fraud.”

This was a follow up from “A victim speaks out about financial fraud” - John Heinzl - The Globe and Mail Published Friday, May. 30 2014, 7:39 PM EDT. Heinzl admits hearing from an investment adviser who said the column was “inflammatory” and depicted the industry unfairly, and from a portfolio manager who prides himself on “trust” and “integrity” and said he hoped (Heinzl) would write a column that “highlights the value of a good adviser/client relationship.

My beef is the insult to salespeople because I believe that in our system, – “Nothing happens until someone sells something to someone else.” The reality is that all successful corporations and individuals rely on sales skills to survive and grow. Are not the major banks, auto manufactures, drug companies, retail chains, hotels and food chains primarily sales & marketing organizations? Do not employees “sell” their skills to their employers? Is not John Heinzl basically a salesman who markets his column?

According to journalist Gavin Adamson – the victim, Sten Buell works for Royal LePage and according to FAIR Canada in 1990 Buell left engineering to join his wife in real estate sales and became an associate broker with Royal Lepage – in other words – a salesman.

Is Stan Buell the victim of a crooked financial professional? If true, I would ask the Heinzl / Buell team to please be transparent – and publish the dates, the offence, the names of the advisor / advisors and the name of the firm involved in the Buell fraud – that is called investigative journalism.

Long Term Apple Charting:

If I had to produce a technical analysis exam – I would only ask one question: When looking at a bar chart what scale do you use? Pick one.

1- Linear Scale Always

2- Semi log Scale Always

3- It don’t matter

4- Up Trends use Linear Scale – and - Down Trends use Semi Log Scale

5- Up Trends use Semi Log Scale – and - Down Trends use Linear Scale

I and many other experienced technical analysts will always go with #2 Semi Log Scale Always. If you are a business media reporter you may choose #1 so as not to confuse your reader / viewers,If you are selling mutual funds you may chose #4 because the up-trends look bigger than the down-trends and If you are an investor advocate you may chose #5 because the up-trends look smaller than the down-trends

If you pick #3 you are likely to be an accountant or, a financial planner

This is a repeat of an Apple Inc item on chart scale selection I did 2-yers ago – only the charts have been up-dated:

“Much has been said about the recent advance in the shares of Apple Inc. with the big focus on the February to March non-stop run from $400 to $600. Now with Apple paying a dividend there are views on a transition of Apple from a growth company into a value cash cow that will spin of cash to the shareholders, A few days ago on business TV a technical analyst referred to the recent advance to be “parabolic” and warned of a probable nasty correction – see chart below.”

And:

“The technical analyst made a common error – typical in the industry in that he is using the incorrect scale. The rule is if the price data in the window doubles – use a semi log scale. Linear scales are OK for TV and newspapers but not OK for proper trend analysis.

Our second Apple chart below clearly displays Apple in a defined secular advance within the center of a long term growth channel. The so-called parabolic run has vanished.”