You’re angry. I know I am.
But believe me…when you’re done reading this, you’re going to be angrier than before.
That’s because I am about to share with you the evil nature in how a small group of people can make money off the misfortune of others.
This likely includes many of you.
In fact, not only do “they” make money off the misfortunes of others, they might even take away the potential for investors to change their lives.
That’s why I urge you to read this Letter in its entirety.
Today, not only am I going to tell you how “they” do it, I am going to show you how to fight back and potentially make yourself a lot of money in the process.
Let me explain.
How $100 Million Disappeared
In just two days, we saw one our largest holdings take a massive hit to the downside.
In just two days, we saw over $100 million dollars of value stripped from honest investors.
Was it because the Company was about to announce something negative?
Was it because the Company was failing?
Was there even any material change in this Company?
It was all so some people, whose names shall remain nameless, could make a few bucks.
What they did was not only unethical, immoral, and self-serving, but it sucked the life right out of investors – investors who invest in companies that could one day change the world.
Today, I am going to tell you what I believe happened to one of our largest holdings.
I am going to tell you how I think “they” did it (based on multiple close sources in the industry) and the sinister operations they deploy to carry out their strategy.
But most importantly, I am going to tell you how to beat them at their own game.
NexOptic Technology Corp.
(TSX Venture: NXO)
(OTC: NXOPF) (Frankfurt: E3O) (Berlin: E3O)
As most of you know, NexOptic Technology Corp. has an option to acquire 100% of Spectrum Optix, a Company developing technologies relating to imagery and light concentration applications.
Spectrum’s core technology, the patent-pending Blade Optics™, contains flat lenses and aims to disrupt conventional lens and image capture-based systems.
This has the potential to change everything from telescopes and cameras to mobile devices, by creating a lens system that reduces the depth (relative to aperture size) currently required in many traditional curved lens stacks.
In Layman, the group has redefined the world of physics and discovered a game-changing way of compressing the traditional curved lens stacks required for optics through the use of “flat” surfaces instead of curved, and a square aperture instead of a circle.
This technology represents a true paradigm shift in the world of optics.
Take a look:
Over the past few months, NexOptic has been on a parabolic rise stock in anticipation of the official reveal of their prototype on April 4, 2017*.
(*The winners for 5 tickets of the official launch event in Vancouver have been drawn. Winners will receive follow-up details within a few days.)
As well it should – their technology is truly revolutionary.
But when you’re one of the best performing and most actively traded stocks on the TSX Venture, you become the target of many – both good and bad.
And last week, we witnessed both…
A Wild and Emotional Week
It has been an extremely tough and wild week for us with NexOptic Technology Corp. (TSX-V: NXO), as we are big investors in the Company and maintain our core position – so watching our portfolio drop by millions isn’t fun.
I just got out of the hospital having suffered a broken sternum, so I apologize an update couldn’t come sooner.
I am hoping you accept my apology as I explain what I believe happened.
And it has to do with a group notorious for selling companies short.
But first, a quick overview.
What is a Short Sale?
Short selling is simply selling stock you don’t have.
You borrow stock from institutions, sell it, and hope that the stock goes down so you can buy it back at a cheaper price.
The big short sellers have a massive war chest of funds, many in the hundreds of millions of dollars.
That means some of these groups can sell a lot of stock without actually owning any because they have the means to cover their shorts. The more they sell, the more they can influence the price of a stock downward.
If they can convince or scare investors into selling stock at lower levels, they can make a lot of money.
But what if no one wants to sell stock and there are more people willing to buy stock at cheaper levels?
That’s when the shorts get squeezed.
The Short Squeeze
A short squeeze is a rapid increase in the price of a stock that occurs when there is a lack of supply and an excess of demand for the stock.
Short squeezes result when short sellers have to buy back and return the stock they borrowed.
This results in buying volume that often drives the stock price up.
If investors aren’t willing to sell stock and the stock keeps rising, the short sellers could be on the hook to buy stock at ridiculously high levels.
So how does this relate to NXO?
When Shorts Get Squeezed
The Investment Industry Regulatory Organization of Canada, otherwise known as IIROC, reports the total amount of short sales for every given Company, every two weeks.
On March 1, 2017, IRROC reported there was a total of 775,288 shares short of NexOptic Technology Corp. (NXO) reported during the prior two weeks.
That means someone, or a group, had sold 775,288 shares of stock without actually owning it.
But since very few investors wanted to sell and even more wanted to buy, these shorts likely had to be covered.
This would have forced NXO shares to climb higher. And that’s precisely what happened.
From March 1-16, 2017, the price of NXO climbed from C$1.73 to C$2.93.
Having likely lost on their last short, the short sellers became even more aggressive.
In fact, during that same two-week period, the amount of stock shorted climbed by nearly 85% to 2,375,897, with a value of C$5,334,029, as reported by IRROC.
That means short selling was responsible for more than 23% of the trades in NXO during the first two weeks of March!
Because there were more buyers than sellers at those price levels, the shorts likely had to cover again. And I suspect they did.
In the days following the release of the short report by IIROC, NXO shares climbed again, up 9.5% one day and 11.84% the next.
By the end of the trading day on March 20, 2017, NXO was trading at C$3.59 – more than a ten-bagger for the many readers of this Letter.
The short covering, combined with all of the real investor interest, pushed NXO to a new high of C$3.76 the following day.
Short Sellers Get Help: Coincidence?
With millions of dollars short, whoever was shorting needed help.
If they couldn’t convince sellers to sell and buyers to stop buying, they could be on the hook for millions.
Call it a coincidence, but that’s exactly when “help” came to their rescue.
Word on the street is that on March 21, 2017, an investment newsletter out of the U.S. told their readers to take some of their position of NexOptic off the table.
There appeared to be no basis for his recommendation other than the simple fact that some of their readers could have potentially been up more than 600%.
So I don’t exactly blame the writer for doing what he did. The stock is up significantly and it’s not unwise to take profits along the way.
However, this caused an organized sell-off that gave exactly the downside spark required for the Short Seller group to come in heavy and cause an immediate panic in the stock.
In fact, trading was so rampant in NexOptic that it caused the single stock circuit breakers on the exchange to halt NXO three times on Tuesday, once on Wednesday, and yet another time on Thursday.
In just one week, nearly 35 million shares of NexOptic, with a value of around $85 million dollars (including U.S. exchange) were traded – that’s more than half of the Company’s currently issued shares!
Single Stock Circuit Breaker
For those who are unfamiliar what the single stock circuit breaker is, it’s a procedure implemented by Canadian regulators as part of a series of reforms to help control short-term volatility in stock prices.
The single stock circuit breaker is a five-minute halt (and can be extended up to 10 mins.) of trading in a security that gets automatically triggered if the price of a security swings 10% or more within a five-minute period.
The problem with these Single Stock Circuit Breakers is that they allow the short seller to be even more calculated with their predatory trading.
These circuit breakers can halt trading for up to 10 minutes. During this time, it gives the short sellers time to reassess their position.
In fact, the news rules by the TMX Group, as I mentioned in 2012, actually helps them.
If you haven’t read that Newsletter, I strongly suggest you go back and read it (by clicking here) if you want to learn more about how the financial system actually works.
In a nutshell, as it relates to short sales, short orders can be made even when a stock is halted.
As per section 4.7 of the TMX Order Types and Functionality Guide:
“A short sale is an order to sell shares that are not owned.
Short sell orders are available on TSX, TSXV and TSX Alpha and will be permitted to have the following attributes:
- A Short Sell order is treated identically to a Sell order from a matching allocation perspective
- Market priced short sell orders will be accepted in the pre-open session and also when a symbol is halted
- Short sell orders will be accepted with Mixed lot or Odd lot volumes
- Market on Close (MOC) and Limit on Close (LOC) orders may be short sell orders”
So when the regulators halt the stock, it allows the short sellers to reassess their position and gather more intelligence as the market organizes itself.
And since “they” have access to much more advanced trading dashboards, they see a lot more than what you see.
In fact, they have many ways of short selling that plays to their advantage. For example, some of theses short funds can employ what is called a Short Marking Exempt (SME) marker.
Via the TMX:
“UMIR rule amendments respecting short sales and failed trades have required the use of a Short Marking Exempt tag.
Certain types of traders are not required to mark their orders as short, irrespective of their position (long or short) at the time of order entry.
Instead, their orders (buys, sells, and crosses) are designated as Short Marking Exempt via the SME flag.
The SME flag is indicative only, and has no effect on how the order interacts with the order book.
All other traders enter Short Sell orders when appropriate, and do not use the SME flag on any order.
The Short Marking Exempt tag will reside in the private layer of feed messages securing the anonymity of the designation.”
This gets complicated to explain in detail, but it’s important to understand that there are certain advantages the short sellers have that we simply can’t fight.
Furthermore, while short sale orders need to be marked as a short sale, a short seller’s identity and overall short position does not need to be publicly disclosed, so there is no way of knowing a single short seller’s short position.
The Significance of the Circuit Breaker
You may recall last year when these single stock circuit breakers were imposed on a number of weed stocks.
Many of the those stocks soared to new highs, including Canopy Growth Corp., which exceeded 2 billion dollars in value.
“Volatile share prices of Canada’s publicly traded marijuana companies triggered numerous circuit-breaking halts in trading Wednesday as buzz surrounding the nascent sector pushed valuations to record intraday highs.
Aphria Inc., Mettrum Health Corp., Organigram Holdings Inc., Supreme Pharmaceuticals Inc., Aurora Cannabis Inc. and Canopy Growth Corp. were all halted for five-minute intervals Wednesday-some of them multiple times.
The Investment Industry Regulatory Organization of Canada said the halts were triggered by single stock circuit breakers “due to volatility in the stock prices.” It did not comment further.
Canopy Growth – Canada’s largest marijuana company – was halted four times, after reaching a valuation of $2 billion, double its worth on Friday when it first reached the $1 billion mark for the first time.”
Of course, not one media outlet actually pinpointed the true cause of what really happened.
“…it is unknown what caused the sales to skyrocket like they did on Wednesday morning but, in general, stocks in marijuana companies have been going up-even more so since seven new states voted in favour of legalizing weed for recreational uses.”
So what really caused the trading of weed stocks to go crazy?
I’ll tell you what caused it.
What Really Caused the Weed Stocks to Go Crazy
It was the result of the Short Seller group, or groups, getting caught on the wrong end of their shorts.
Take a look:
As you can see, in the two weeks leading up to the infamous climb in weed stocks on November 16, 2016, the short sellers had nearly doubled down on their shorts on weed stocks.
In fact, the short sellers were a whopping $350 million dollars short in the six stocks that triggered the single stock circuit breakers!
But a perfect storm of events, including media coverage and political policies, led to a mass amount of retail investment interest.
And when the short seller group couldn’t force the price of the weed stocks down, they likely had to cover a massive $350 million short position by buying stocks back at a much higher price.
That’s what took weed stocks to ridiculous new highs.
Just take a look at what happened to Canopy when the shorts had to cover:
NexOptic vs. Weed Stocks
From November 1st to November 16th, 2016, the short position in the weed stocks climbed 83% (as shown above).
Similarly, from March 1st to March 16th, the short position in NXO also climbed just over 84%.
Both times, short sellers were caught on the wrong end of the trade, as NXO climbed to a new high of $3.76 in the following days.
The only difference is that in the case of NXO, the short seller had help from an all too timely newsletter sell recommendation.
Had that not occurred, we could have seen NXO climb even higher.
But wait, there’s more.
My sources tell me that the Short Seller in NXO (again, I am speculating based on information I received from multiple sources) trades mostly out of TD and Anonymous.
This makes sense.
TD has one of the largest retail trading platforms, which likely means they have a large amount of stock to “lend out.”
From January 1st to March 10th, 2017, TD* has been a net buyer of NXO.
(*This isn’t to say that TD the bank was a buyer. It means that trades originating out of TD were mostly on the buyside.)
In fact, they have been the biggest buyer in terms of transaction volume.
NXO Cumulative Trade Data from January 1-March 10, 2017
But then, from March 13th onward, a week after my newsletter on NXO, TD became an aggressive net seller.
NXO Cumulative Trade Data from March 13-17, 2017
Coincidence? You be the judge.
That’s not all.
In order to make a stock look weak, these short sellers will often go on both the buy and sell side in small orders to drive the price down.
The number 007 represents an order from TD, and the number 001 represents and order from Anonymous.
Here is someone trading out of TD (007) trying to make the stock look weak by stacking sell orders in small increments of 100 shares:
Also, notice the time and sales on the right side, where 100 share lots are bought and sold by TD and Anonymous, all executed within a split second.
By stacking sell orders, it creates the illusion of people wanting to sell stock.
Their intent is to drive the price down so that investors – including many of you – panic and question if there is something wrong with the Company.
But that’s just one of many tactics.
Because millions of dollars are at risk, short sellers may resort to more than just trading to drive negativity.
This includes the age-old tactic of paying people to spread negative rumours on stock chat rooms, forums, and even paid articles.
I am not a fan of stock chat rooms because they are often filled with a lot of misinformation.
But do you think it is a coincidence that in the days leading up to NexOptic shares falling last week, and in the days the short positions increased, there were a flurry of new bashers in the stock chat rooms of NXO?
Don’t let them fool you. Paid bashers have long since been a part of the underground financial world.
Their job is to make you question your investment and the Company you invested in by spreading negativity. They know most investors react with their emotions rather than logic.
They prey on exactly that.
But in the case of NexOptic, the truth is that the Company has not announced any material changes and, in fact, couldn’t be more excited about the launch of their prototype.
We all invest to make money.
So perhaps we shouldn’t blame the short sellers so much – they’re just trying to make money using a system that allows them to do it that way.
In fact, we could even thank them for helping bring more volume and liquidity to our market.
Short sellers make money betting against a company’s current perceived value. A lot of times, they do this based purely on momentum of the stock and not the actual merits of the Company they are shorting.
They may have looked at NXO and thought:
“Wow, here’s a company with a massive market cap but no revenue – and it keeps climbing.”
What they may not realize is the true intrinsic value of the breakthrough technology within NexOptic.
For example, I believe that smartphone makers, such as Apple, Google, or Samsung, will likely want to get their hands on this technology.
If just one of the big players puts the Blade Optics™ technology in their lineup of phones in the future, in my view, a US$1 billion valuation would not be unrealistic.
Currently, the US market cap for NexOptic is barely over US$100 million.
So even at the current share price, it could still be a ten-bagger if just one of these smartphone conglomerates puts Blade Optics™ into their devices.
And that doesn’t even include the numerous other verticals that the Technology could disrupt.
In fact, according to IC Insights Inc., the total market value for digital cameras and imaging systems is expected to grow from approximately US$55.5 billion in 2012 to US $77.8 billion by the end of 2016.
I am not saying NexOptic should be worth a billion dollars today. But it is important to note that despite its current valuation of just over US$100 million, one could easily argue that it is still undervalued relative to the potential of what it could become.
And isn’t the stock market supposed to be a forward-looking indicator?
So it’s actually quite simple.
If we believe in NexOptic’s technology and are willing to risk its market acceptance, then we shouldn’t be so emotional about the daily ups-and-downs of the market.
I can’t tell you to when to buy or sell stocks, but be smart and don’t let the short sellers scare you.
The next time we witness volatility where there is no material change in the Company, try to learn and understand what’s going on.
If no one sells stock, then the short sellers have to buy back at much higher prices, making investors a ton of money in a very short time.
Here’s the exciting part.
I am confident that, at anytime, there will be mass media coverage of this technology.
The disruption of NexOptic and Spectrum’s technology is simply too big of a discovery for the media to ignore.
So if the short sellers come back (I am not sure if they have fully covered their positions yet), they could be in a heap of trouble if all of a sudden the NXO story gets featured by not one, but multiple news outlets.
And as the short sellers have already experienced, there is an undeniable wall of investors who would love stock at lower prices.
Big things are coming and when the NexOptic story hits the masses, I certainly wouldn’t want to be on the short side.
PS. And if you’re wondering…yes, I bought more stock last week, as did many of my colleagues.
PPS. The winners of the NexOptic launch event have been drawn and those who won will be receiving an email within the next few days.
NexOptic Technology Corp.
Canadian Trading Symbol: TSX-V: NXO
US Trading Symbol: OTCQB: NXOPF
German Trading Symbols: Frankfurt: E301 Berlin: E301
Seek the truth,
The Equedia Letter
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