Usually, you have to dig to understand what companies do, and how they do it, to determine why the stock price rallies or falls. I was searching the LDMicro site to find the movers from Monday, and clicked straight through to the January 30, 2019 letter to shareholders from CEO Kam Mahdi of Clean Energy Technologies, Inc.
It was refreshing because he listed clearly and succinctly what the company did, where it was going and why. Very clean. His share price reflected this in volume, which increased 20x as the share price jumped 200% to start the week with large blocks of stock changing hands during the noon hour in the Monday session.
I noted the large block trades in time and sales with shares rising above the $0.03 level and by the closing hour shares were trading at $0.06. Keep in mind, trading had been relatively dormant, so the shock to those who trade it day-to-day was apparent. Often in these cases, when you have runaway pricing on a percentage basis, you get irrational price action, but shares of CETY held in there. It will be interesting to see where prices are supported after the run up yesterday.
My guess is we get some sort of retrace back to $0.04, and we should devote time and attention to short covering. I think yesterday was a squeeze – combined with a real buyer – no matter how you slice this trade. A large investor bought more than $250,000 in real dollars. This new entrant is what has the day traders buzzing. See chart below.
Analyzing the Run
The timing for CETY is good as we look for companies who are in green sectors and have an innovative idea or approach to making money in any energy sub-sector.
I see shares react like this often, running in front of the company’s fundamental valuation, when the normal market makers get blown out. It is important in smaller stocks like these to pay attention to the equity market capitalization, which for CETY was near $35 million at the close of trading Monday. This simple calculation of shares outstanding multiplied by share price often is the only way to grasp the changes in company valuation in the microcap world.
This volatility is likely a result of a trading algorithm as a tool to enter or exit a position. The thing I am finding more and more in large price moves in microcap stocks is that anyone can now program via widely available trading platforms like TD Ameritrade and E-Trade and turn a simple algo loose on an unsuspecting OTCQB symbol. It is happening more and more each session.
The company and what it does is irrelevant to these algos as they don’t pay attention to the important fundamental metrics the company puts out.
Instead, they are looking for technical metrics which create momentum. I don’t think this is new in trading, but I think it is becoming more important if you trade these stocks. Since most microcap investors initiate positions in these stocks trading from the long side, you get price moves like that which occurred here in CETY.
Historically, this happens in stocks like this where you have a “fat tail” event in which the volume has a 20x spike taking share price with it. Time will tell if this was short covering, new buying or a simple spike in prices. I don’t think the momentum (algo) traders really care, I think they move from symbol to symbol and have an on-to-the-next-trade mentality which is more about AI than it is about intuitive investing in undervalue shares with a strong fundamental story. So, it’s hard to block out the noise when investing in Q1 2019.
I like the fact that I can scroll quickly and get some metrics and connect the dots between fundamental fence posts and blocks of stocks changing hands. I think this happens when you have a CEO who cares about communicating with shareholders. Some of the best C-Levels executives don’t look at stock price intraday or even interday, and rather focus on running the company for the long haul. They recognize that their job is to manage the company, and that trying to manage the stock price is a fool’s errand – what a refreshing approach to investing.
Learn more about the company here.
Steve Kanaval
Portfolio Manager/Writer/ Market Analyst
Can be reached at [email protected]
Steve began his career in the Trading Pits in Chicago making markets at the Chicago Mercantile Exchange (NYSE:CME) the Chicago Board of Trade and the CBOE in the early 80’s. He ran the Morgan Stanley Derivative Prop Trading for the firm specializing in Index Arbitrage. He continued his career as a Trader/Portfolio Manager for multiple Hedge Funds during the Internet Boom of the 90’s managing large portfolios. Steve is known as an expert in MicroCap Technology Stocks and the emerging Digital Currency markets as a Portfolio Manager for his Family Office. Steve has managed portfolio’s in volatile asset classes for 3 decades as a commodity trader, hedge fund manager and digital currency trader and miner. Steve publishes his views on the asset classes in a public forum and has published multiple articles simplifying these complex and volatile assets for readers. His work is published on multiple sites including Bloomberg, Equities.com, Hacked.com, CCNews as a paid contributor. His work includes research, journalism and archived video on important market volatility related to stocks, digital currency and other volatile misunderstood asset classes. He offers a humorous, unique insight and the related back stories and drivers for readers interested in volatility and emerging market assets.
