|
|
|
"Stocks in the Spotlight"
SPIKING A STOCK
|
|
|
Whom Ever Gets Out First Takes Home The Bacon
Spiking, is the process of a company starting heavy advertising and promotions designed to be packed in a few short weeks, for the sole purpose of moving the price of it's stock quickly in order to raise money. The idea is to cover investors so heavily that they jump in and buy the stock so the company can jump in and sell some.
There are many ways a company has of raising money when the stock climbs. Spiking is the idea of raising as much as possible quickly, because once the advertising and promotions stop the only way for the stock to go is down. Whomever gets out first takes home the bacon!
Spiking, is about the worst thing a company can do. It starts a process of future selling on almost any news. Investors that chase the stock and buy a few days after the move starts, end up watching their investment turn into a loss position shortly after buying. This is because it only takes 20% sellers to drive a stock down. If we don't want it, neither do the market makers.
Most companies never know the damage they are doing. Some sharp promoter comes in and tells them s/he/ they have the ability to raise funds quickly. The company never thinks about the damage it does to shareholders by using this process to catch them.
The next time the stock moves up again, if it ever does, the investors that bought high and got burned are quick to step up and get out on almost any upward gain.
Now what happens down the road, maybe 3 to 6 months after the first spike, the company does the same process again. This time the stock will not get anywhere near the level of the first spike, since they added many more sellers by screwing them in the first place. The company will not be able to raise as much money as before, and they will have to sell more shares the 2nd time around for fewer dollars, which means more dilution.
The process usually takes a stock down to the nickel level and it does not take long. Every move higher is met with more and more sellers. Why? Because they got screwed. The stock didn't move on an announcement of big profits, or a big sale, but usually on news of not much of anything.
We as investors have to look at the real reason the stock is climbing. If we can get in in the beginning stages of the "SPIKE". we can get out in about a week to ten days with a giant profit. Just make sure to get out.
I try to teach companies that they only way to move the stock up is to take 3 to 6 months to raise the money needed. By using a longer term advertising and promotion platform the stock will climb like a stairs, moving up a bit and allowing sellers to sell to the buyers and this keep the stock from falling.
Remember, it only takes 20% sellers to knock a stock down, therefore the sellers need to have a someone to sell to when they want to, not because the stock is falling off a cliff and no one can get out fast enough. If a company uses a longer term program, they will have a constant flow of new investors coming into the stock - over time - and allow the investors that wish too sell someone to sell it to, over time. This way the stock is able to climb, assuming it deserves to.
Spiking the stock in a company that virtually has nothing is the norm. These are the companies that need to move stock to pay the bills, simply because they have nothing. As investors, this is where we need to look the hardest. We do not want to confuse a quality company, one with a strong shot at a future, with a company that will need to stretch hard to get anywhere.
This is where reading about the company comes into play. It has to have a story that makes sense and many do not. When reading the story, ask if if makes sense. The story will always sound pretty good, but reading between the lines is where we can find the real story. As investors we want to discover the spike and avoid it. There is no way of knowing when it will turn back down, but when it does it will do so at a fast pace.
When following the trading habits of a low priced stock, one that we may have an interest in, we need to look at the volume over the last 3 to 6 months, or further if possible, but the last 3 to 6 months is the most important since it has to do with current events. We want to see steady volume as opposed to low volume that sometimes has a big day. If the stock is slowly climbing and the volume is steady, this is where we want to be. This holds true for a stock we may already own. A big jump in volume, accompanied by a big jump in price, is an invite to put on our Nike's and see how fast we can get out the door.
Spiking a stock leads to a low price on the stock and usually well over 100 million shares trading through dilution before the company finally goes belly-up. This can take a couple of years to fall all the way to a penny, and the investor that already owns the stock will never be able to make a cent, since all the new investors are buying so much lower.
The "bottom Line" is, if we can't get in before the spike, we don't want to get in at all. If we are already in a stock when the spike happens, don't start believing the company can turn sand into diamonds, but instead look for those Nike's.
Find a nice low priced stock, with steady volume and trending higher. This is where the big returns come from. As always, it takes time to build a good engine and the smart leaders realize this.
Brand Neue Corp. (OTCBB: BRNZ) (52 week range 0.12 - 1.71), now at 0.43 X 0.54. Brand Neue was a recent "Spotlight" stock and it moved from our buy at 0.70 to $1.10 before turning back down. Although that was a 50% move, the stock fell like a brick.
The Reason:
When I first introduced BRNZ the president was a seasoned ex-employee of Wal-Mart, where he had worked in marketing for 30 years. Recently, this important addition to the management team jumped ship. So long! Adios! Good Bye!
You might say he left (we will never know the real reason) before the ship sank. Grabbed his Nike's, put them on and split. Didn't let the door hit him in the back on the way out.
After taking a much closer look, we find a company that owns nothing, has nothing, sells nothing, has zero revenues and none on the way. Of course, if they finally sell something, something they have not been able to do in a year, the company could become a good bet.
You Can't Judge A Book By Its Cover
The above saying could have been written with this company in mind. Nice looking cover but when we start reading it we discover it's not a very good story.
The LED lighting business will be big, but there are big players in it already, such as GE and Sylvania. The problem with Brand Neue is the company would have to get a giant order, or several giant orders, to warrant a stock price over a dime, making the current 0.60 level very risky, and the dime worth would only be because of a giant order.
We can bet on slim chances for this to happen, but you never know. Heck! Mr. Ed was a horse that could talk so I guess anything can happen.
Idiscovered by the recent "quick" move up that the stock was being "Spiked". Another word for spike is "pump & dump. The art of a strong promotion designed to last a short period of time so "those in the know" can sell into the higher price. Once done, no more promotion and down comes baby, cradle and all. Don't get me wrong, I totally believe in promoting a company long term but this does not appear to be what is happening.
The recent news might be looked at as "hogwash". One announcement talks about leasing light bulbs. I chuckled on this one. Also, no one is leasing any bulbs yet, or maybe they are. I haven't noticed any news telling us this.
A announcement that gives a company 6 months to decide if it wants to buy the company's spray can, but after 6 months, it's gone and the company doesn't have to buy anything. Great deal, for the other guy.
There was an announcement about having its first distributor, Hawaii, with orders to be shipped in 30 days, or by September 16, 2010. OOPS! That was last week. Soon I hope, but it better be a big one.
Another announcement in the last week talks about a new partnership in lighting, but again, no orders.
The company is either losing products, or giving them up, in an attempt to concentrate on the bulb business. Sort of a better idea (picture a small light bulb)! OOPS! Ford will hate me for this.
On August 27, 2010 , Mr. John J. Ryan III resigned as the President of Brand Neue Corp. This is the guy with 30 years at Wal-Mart. I guess he is not much of a believer in Brand Neue's future. This is one of my main reasons to tell investors that avoiding this stock is best and of course with no sales to add, is another good reason to break away from this company.
Sure , I could be wrong, since there is always a possibility a company can finally climb out of the gutter, but so far I have not seen any signs this one will do so any time soon.
The constant dilution from the company selling stock is hurting current shareholders, but this is the only way the management team can get paid, since there are no orders to bring in money.
When I
first looked at this company it looked good, but after I
opened the book and started reading the pages I
found the best part of this story was the
cover
.
Right after I wrote about the company it started a round of press releases that had no sales in any one of their products, plus the President jumped ship.
I am guessing there might be another "pump & dump" in the not too distant future, which could bring the stock back up a bit, but nowhere near the previous high. The next time down will probably see the 0.30 area. Each pump & dump usually climbs less than the previous one, has less volume and falls further each time the dump is completed.
Keep in mind that this could be the greatest investment anywhere, its just that I don't believe so and this is my opinion. I am sorry I got caught in this one, but it just goes to show, the early bird sometimes bites into the wrong worm. I truly believe, as investors, you should be somewhere else.
Trading near the $0.60 level. Any quick move higher will offer an opportunity to get out.
Sell here, or into any attempt to move higher!
I'm J.R. Budke and this is my opinion!
J.R. Budke
Stocks in the
Spotlight
209.383.4647
spotlite@thespotlite.net
www.thespotlite.net
The Stocks in the Spotlight is not an Investor
Relations or Public Relations firm, but a stock market related web site with
opinions and recommendations. It also has to do with equity strategy, with a
desire to assist in the various methods of increasing the value in a public
company. If you need assistance in equity strategy, or consulting, please
contact us at the above telephone or e-mail address.
|
MEMBER LIST |
|
| Quotes &News |
Market
Comment | Research
Reports | Spotlight Futures | |
|
J.R. Budke had been a stock broker since 1981, an options principle since 1982 and a branch office manager since 1987. He is currently inactive as a stockbroker as of 12/31/99. J.R. writes the articles and opinions for the Stocks in the Spotlight, and the opinions and selections covered in this section are his opinions only, and no others, unless otherwise stated. You should not purchase any stocks solely on Mr. Budke's opinion. Mr. Budke's opinion should not be considered advice as it is only an opinion. Always consult with your broker or investment advisor before purchasing any stock. |