One of our picks for the most exiting oil plays of the last decade, Reconnaissance Energy Africa (TSX.V: RECO, OTCMKTS:RECAF) appears it may have come under heavy short selling as revealed in a recent report by Buyins.net. http://www.buyins.com/reports/recaf5-25-21.pdf
Since late November 2020, 85,918,776 total shares of the company have been sold short in the U.S., according to the Buyins.net report.
That means an average of 57.16% of the company’s shares traded every day in the U.S. look like they have been sold short.
In Canada, the numbers seem even larger. The report shows that a shocking 113,188,174 shares of the company have been sold short since May 24, 2016 (inferred from US short selling average in RECAF). That number tells an even more surprising story in combination with the charts below that we think expose the truth: the majority of this short position may have started in the middle of 2020.
And with ReconAfrica expected to announce results from Well 2 within the next 4 weeks and if those results are good, which the company’s management seems very confident about, then Short sellers may not have a long time to get out of their huge position.
We think these charts tell the real story and the current state of play, but it’s important investors understand the following:
There are 4 trade identifiers – buying, selling, shorting and covering.
The numbers above, however, report that 57.16% of trading in the company’s shares is short selling. As a result, that would mean that only 42.67% is divided amongst the other 3 trade identifiers.
If you divide this by 3, it appears only 16% is covering every day. Only 16% is buying, and only 16% is selling.
If only 16% is covering every day, then there is 3.5 times more short-selling than covering.
We called Tom Ronk of Buyins.net after the report came out to dig deeper into the numbers. He told us this could be one of the larger short positions (as a % of total volume) he has come across in his experience recently. He believes the total undisclosed short position in ReconAfrica’s shares across Canada and the U.S. could be in the tens of millions of shares.
Ronk further explained to us that the VWAP (Value Weighted Average Position) of the short in the U.S. is $3.78, while in Canada, the VWAP is $3.28 CAD. This would mean that the short sellers, at this moment in time, are already out a whopping $4.50 per share. If the numbers in the charts above and the tables below are correct, whoever is shorting could be down by hundreds of millions of dollars. And that is only if the stock stays at the price it is right now. If the company were to release positive news in the near future, we could see the short squeeze continue.
But in our view the market participants that are shorting the stock are not the only ones at fault here. Market makers appear to be violating the fair market making requirement from 2008. By the SEC’s own reports, daily short selling historically averaged 25%. In this case, the total shares reported to be shorted are more than double that figure. There is more to this story and we will continue to update you.
Facing potential losses like this, we think hedge funds won’t be taking this position lightly. That’s where things could get dangerous. Because of that, they may have to get aggressive. Indeed, it appears that there is possibly already a major short-and-distort / smear campaign going–a standard tool of short sellers to create panic and drive the stock price down.
In a recent announcement by ReconAfrica, the company says National Geographic is facilitating activist short sellers to destabilize its stock. If true, in our view this would represent a terrifying escalation of aggression by hedge funds. (There is also a theory on one stock forum speculating that Canadian based hedge funds may be the culprits of the distort campaign.)
It’s not typical for a reputable magazine such as National Geographic to mess around with small-cap oil exploration stocks, and it appears that someone made a complaint to the SEC about Recon Africa and that National Geographic ran with it as if it were an actual investigation. Anyone can complain to the SEC, and the general consensus is likely that National Geographic should stick to what it does best and avoid involving themselves unwittingly in what appears to us to be stock price manipulation.
A question we think everyone should be asking is who made the complaint to the SEC and then fed the info to National Geographic? More precisely, who was motivated to push RECO stock down, and when they complained, were they holding a short position in the stock, which they would be required to disclose to regulators, along with the size of the short position?
There also appears to us to have been a number of baseless lawsuits that suddenly cropped up very conveniently as soon as the National Geographic article came out. Their origins may also prompt many questions that should interest regulators, including whether the law firms involved have relationships with certain Canadian hedge funds that are rumored to have masterminded this.
Not only do we think that what has taken place with the alleged aggressive shorting and smear campaign is manipulative, but it may ultimately damage Canada’s capital markets and their reputation on the international stage as a financial center.
Why would companies want to list on the Canadian exchanges when they may be mercilessly attacked by market participants using manipulative strategies with impunity?
It could also cause huge damage to investor confidence in Canada’s capital markets if investors believed that the playing field is not fair and never has been, and is not likely to be anytime soon, given a lack of regulatory oversight. Canadian regulators recently announced they will be cracking down on naked short selling, but the exact timing of these actions remains unclear.
To understand more about what investors and companies may be up against with naked short sellers, watch these videos on Youtube:
https://www.youtube.com/watch?v=wKXWvEpnN34 https://youtu.be/2rJujnpKiqM https://youtube.com/watch?v=KHnpPfWdf78&feature=share
According to BUYINS.NET, it has consolidated the tape of all 14 US stock exchanges. This includes the batch prints from approximately 47 dark pools (ATS) in the US. By merging all the SELL SHORT trade identifiers into 1 central database and sorting by stock symbol, BUYINS.NET is able to see the universal set of short data including exempt market maker short sales. Total Short Interest only includes non-exempt short sales that have not yet covered. It misses a majority of the total shares shorted data that BUYINS.NET compiles. This data is then used as the “analog” for Canadian total shares shorted information. Because Canadian regulators still do not allow exchanges to provide the SELL SHORT trade identifier data, the best data scientists can do is infer the data using the % of total trading volume that is sold short in the US and overlaying that on the Canadian time series price and volume data.
Keep your eye on this name as we will be updating readers with any news as it comes in.
Other companies that have drawn significant short-seller interest:
Virgin Galactic (NYSE:SPCE) is a space tourism company with big ambitions. It has attracted many investors as well as celebrities such as Leonardo DiCaprio, Ashton Kutcher, and Justin Bieber. The company also offers an astronaut program that provides opportunities for astronauts from all around the world to become a part of history. More than 600 people in over 60 nations have spent roughly $80 million to reserve seats on Branson’s rocketships in hopes of being the first to gain access to this unique new service.
But that hasn’t protected it from the naysayers. Virgin Galactic has been one of the most-targeted companies for short sellers this year. But is it justified? Considering the company’s continued losses and the delay of a key flight, their skepticism is understandable. Others, however, are more optimistic about the company’s future. As with anything in the space industry, what it has planned may not always pan out as expected. But that doesn’t mean there isn’t upside. Once Virgin Galactic’s flights are proven and stable for public use, the revenue should start pouring in.
Gamestop’s (NYSE:GME) that rather dull video game retailer that seemed to more or less be treading water even before the pandemic, has suddenly become so wildly volatile that Robinhood had to limit trades. The company had been struggling to stay afloat, and until earlier this year, many thought it may never recover. The company’s share price dropped so low that some traders began shorting its stock — borrowing shares from someone else then selling them as if they owned them with the understanding they’ll buy back at a lower price or return those borrowed shares later without having paid anything. And as more short sellers piled into GameStop, the company’s share prices continued to decline; but that wasn’t the end of the story.
Earlier this year, a rogue group of Redditors came to the aid of the struggling stock, sending its share price into the stratosphere and shedding new light on Gamestop’s future. Since the company’s insane run-up from $17 in mid-November to its January high of $450, Gamestop has become a turning point for a growing number of investors who dislike the concept of short selling. In fact, short-sellers lost billions of dollars on Gamestop, a move that has empowered retail investors and a new generation of traders. . It was a challenge Wall Street never thought it would be up against, and the claws have come out, and this is where we see the short-sellers show their true colors.
The whole ordeal shined a light on the broken industry. U.S. Representative from California
Ro Khannna even stepped up, supporting the small investors’ rights to buy just like hedge funds. “This entire episode has demonstrated the power of technology to democratize access to American financial institutions, ultimately giving far more people a say in our economic structures.”
The recent GameStop saga is retail fighting back against the shorting powers, and it’s a wonderful thing to see – but is it a futile punch or the start of something bigger?
Tesla (NASDAQ:TSLA) has faced a long road in its dramatic rise to the top. Elon Musk’s vision has helped the company expand into new markets, including solar energy, battery production, and space exploration. However, Tesla is no stranger to criticism. Short sellers have repeatedly targeted Tesla, but it hasn’t always worked out in their favor.
In fact, CEO Elon Musk is notoriously anti-short seller. In a series of tweets, Musk asked, ‘Who wears short shorts?’, and said that “Tesla will make fabulous short shorts in radiant red satin with gold trim,” and “Will send some to the Shortseller Enrichment Commission to comfort them through these difficult times.”
And that wasn’t Elon’s last jab at the SEC, either. Musk has a history of taunting the SEC on Twitter, and some of his tweets essentially disclosing information about Tesla cost him several millions of U.S. dollars in fines.
AMC Entertainment Holdings, Inc. (NYSE:AMC), a holding company with investments in movie theaters and entertainment venues, has also seen its share of attention in recent weeks. The company operates through two segments: Domestic Theaters and International & Other Theaters. AMC’s basic business model, which includes owning movie theaters and entertainment venues instead of running them, leaves it especially susceptible to an event like the COVID-19 pandemic. In fact, many theaters closed their doors forever.
And that was obviously picked up by short sellers. Short sellers hit AMC particularly hard last year, but, like in the Gamestop saga, the shorts were met with the full wrath of Reddit. Since the initial flood of news, AMC has become a cult-stock for many. All you need to do is spend 5 minutes on #FinTwit to see that. And though the company has seen an influx of support from shareholders, it is still facing an uphill battle.
AirBNB (NASDAQ:ABNB) is another stock that has come under fire in recent weeks. The travel-dependent company was slammed with COVID-19, and as such, short sellers took aim, hoping to make a gain on its struggles. But short sellers may just have their days numbered.
Over half of the U.S population has received at least one dose of the vaccine, and close to 38% have been fully vaccinated which is means states and tourism is opening back up. And that’s good news for AirBnb.
In addition to tourism slowly beginning to return to normal, Airbnb is prepping for a new round of earnings, and they could be even bigger than the last. AirBnB has already been showing signs of improvement in sales over the last quarter—and with more and more people getting vaccinated, its earnings could continue top grow.
It wasn’t so long ago that analysts and investors alike were ready to write off their losses and give up on electric vehicle manufacturer Nio Inc (NYSE:NIO)…In fact, there were even rumors that the automaker was on the brink of bankruptcy. But the Chinese Tesla rival powered on, blew away estimates, and most importantly, kept its balance sheet in line. And its efforts have paid off – in a big way. Short sellers loved this stock…until they didn’t anymore. From near-bankruptcy to 1000% gains, short sellers that bet against Nio were burned in the process.
Nio has made all the right moves over the past year to turn heads on the streets and in the marketplace… From its stunningly beautiful – and fast – EP9 supercar to its new line of family-friendly high-performance sedans, Nio is well on its way to retaking control of its local market from Elon Musk’s electric vehicle giant. The company has seen its share price soar from $3.24 at the start of 2020 to a high of $50 earlier this year before falling back to its current price of $34.88.
Canada’s pot stocks have long-been a target for short sellers. As the world’s third-largest marijauana company, Aphria Inc (NASDAQ:APHA, TSX:APHA), an Ontario-based marijuana giant currently has operations in 10 countries and distributes legal medical marijuana across the planet. And thanks to its unique approach to this emerging market, Aphria has proven itself to be resilient even amidst the global pandemic that has left many of its peers hurting. Largely impacted by rumors and news, Aphria is a super-volatile stock, but that doesn’t mean the short attack is reasonable.
While Aphria, and pot stocks in general, remain in a sort of gray area as some of their largest markets, there are a number of bullish factors to be considered. Legalization isn’t just a pipe-dream anymore. In fact, it’s almost a certainty. And when the floodgates finally do open, Aphria could emerge as one of the biggest winners.
One way Aphria has set itself apart in this turbulent market is through its acquisition of SweetWater Brewing, one of America’s largest craft breweries. Aphria Chairman and CEO Irwin Simon explained, “We will establish and grow our U.S. presence through SweetWater’s robust, profitable platform of craft brewing innovation, manufacturing, marketing and distribution expertise. At the same time, we will build brand awareness for our adult-use cannabis brands, Broken Coast, Good Supply, Riff and Solei, through our participation in the growing $29 billion craft brew market in the U.S. ahead of potential future state or federal cannabis legalization.”
Canopy Growth Corporation (TSX:WEED) like many of its peers, started the year off with a bang, rising to nearly $50 in mid-February. That didn’t last long, however, as the industry hype wore off and short-sellers invaded the market, Canopy came back to earth, settling at today’s prices. Despite this, however, Canopy is still a solid buy in the cannabis industry thanks to its massive partnerships.
David Klein, CEO of Canopy Growth, noted of its long-held partnership with Constellation, “This additional investment validates the work our team has done since attracting the initial investment in 2017. It also strengthens our ability to pursue the immense market and product opportunities available to Canopy in Canada, the US and other key global markets.”
Westshore Terminals (TSX:WTE) is a coal export terminal located at Roberts Bank Superport in Delta British Columbia. It is Canada’s largest coal export facility, surpassing the combined coal shipments of all other terminals in Canada. Short sellers are eying at like Westshore Terminals based on a simple fact: they’re in the coal business. And the coal business is living on borrowed time.
Though the fossil fuel industry isn’t quite down for the count just yet, coal is seeing a major decline that is only going to get worse over time. And without a significant pivot, Westshore will need a miracle to survive.
By. Charlie Danes
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Forward-Looking Statements. Statements contained in this document that are not historical facts are forward-looking statements that involve various risks and uncertainty affecting the business of Recon. All discussion of short sales numbers and consequences and future events resulting from the short sales are our opinions based on what we believe to be reliable information, but we have not fact checked and we are not qualified financial analysts. All estimates and statements with respect to Recon’s operations, its plans and projections, size of potential oil reserves, comparisons to other oil producing fields, oil prices, recoverable oil, production targets, production and other operating costs and likelihood of oil recoverability, as well as the potential impact of exploration results on the Company’s valuation and the market for its securities are forward-looking statements under applicable securities laws and necessarily involve risks and uncertainties including, without limitation: risks associated with oil and gas exploration, including drilling and other exploration activities, timing of reports, development, exploitation and production, geological risks, marketing and transportation, availability of adequate funding, volatility of commodity prices, imprecision of reserve and resource estimates, environmental risks, competition from other producers, government regulation, dates of commencement of production and changes in the regulatory and taxation environment. Actual results may vary materially from the information provided in this document, and there is no representation that the actual results realized in the future will be the same in whole or in part as those presented herein. Other factors that could cause actual results to differ from those contained in the forward-looking statements are also set forth in filings that Recon and its technical analysts have made. We undertake no obligation, except as otherwise required by law, to update these forward-looking statements except as required by law.
Exploration for hydrocarbons is a highly speculative venture necessarily involving substantial risk. Recon’s future success will depend on its ability to develop its current properties and on its ability to discover resources that are capable of commercial production. However, there is no assurance that Recon’s future exploration and development efforts will result in the discovery or development of commercial accumulations of oil and natural gas. In addition, even if hydrocarbons are discovered, the costs of extracting and delivering the hydrocarbons to market and variations in the market price may render uneconomic any discovered deposit. Geological conditions are variable and unpredictable. Even if production is commenced from a well, the quantity of hydrocarbons produced inevitably will decline over time, and production may be adversely affected or may have to be terminated altogether if Recon encounters unforeseen geological conditions. Adverse climatic conditions at such properties may also hinder Recon’s ability to carry on exploration or production activities continuously throughout any given year.
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