The Theory of the Short Position in NFG, Part 1 - What Happened During the Very Last Few Minutes - Yesterday
Many of the Shareholders in NFG/NFGC are aware of the history of this company and it's stock over the last year or two, and even longer......but, I suspect many newer investors are not.
This morning I am going to try to lay out the Big Picture of some of the forces, events, circumstances that have been effecting the NFG share price (for brevity, I will refer to New Found Gold as NFG only).
Let's start the story with the obvious smacking down of the share price during the very last few minutes of trading yesterday.
Almost everyone on this board is aware that there is a small SHORT Position in this stock. If you told a veteran stock investor that there was a Short Position of somewhere between one and two million shares in NFG, which now has somewhere around 175 million shares, he would likely say, 'so what, that's peanuts !'
But, that ignores the likelihood that the Short position is likely concentrated into possibly one key Short player that can use his weight and ability to act singly as an effective tool to control the stock price in significant ways.
During the very last few minutes of trading yesterday I watched my level 2 data and saw about 30,000 shares dumped (I'm looking at my 2 hour chart to see the data on both NFG and NFGC) to push the share price down. This happened in a frenzy of share dumping AND 'flashing' of big sell orders to make the tape appear that there were big sells of stock at the immediate ASK price. For those who don't understand this tactic, let me elaborate.
If a Big player is trying to accumulate shares, he could create a mirage that there are large sellers wanting to get out Now!
Of course, this is illogical. A large seller would be careful NOT to reveal with Big Asks ( an 'ask' is an oder to sell) that he is trying to sell a large amount of stock. Certainly, you don't put up large ASKS During the last 7-8 minutes of trading. But, that is what was happening yesterday during those last few minutes, in conjunction with about 30,000 shares being dumped between the two exchanges NFG / NFGC is traded on.
These large ASKS were NOT placed and left to remain. No, they were 'flashed', and the size of the ASKs kept changing. I saw as high as a 13,000 ask, and as low as a 5000 ASK.
AND, they were 'flashed' for mere seconds at a time. When I say 'flashed' think of a firefly when you were a kid and you were trying to catch fireflies and put them in a jar. Their tails lite up momentarily and you snatch at where you saw the lite, but, the firefly is gone. Then, he lites up momentarily again a few yards away. The firefly is there, but, you can't catch him, at lest not easily.
Flashing an ASK is similar to the action of a firefly. And, when the Placer of the ASK keeps changing the ASK size, it makes it even more difficult to snatch up - buy - that ASK, because you don't know what it's size will be when it appears again in a few seconds or so.
But, the Short Player, likely the one flashing the ASKS , knows there is little risk in there being a Big Buyer out there ready to Snap Up his Big Ask at a moments notice. So, it's a low risk tactic to FLASH Big Asks.....but, you DO have to have the ABILITY to actually PLACE such a karge ASK.....so it definitely IS a large player.
THAT is what was happening in those last few 7-8 minutes of trading yesterday...why?
Well, it was OBVIOUS to me what was happening. One BIG Player (you have to be big enough to actually PLACE such orders of such size) wanted to make it appear that orders of significant size were trying to sell in the last minutes of the day, and these orders were being placed as the LOWEST ASKS.
But, because the orders were being 'flashed', even if there was a big buyer wanting these shares, it's not likely they would get such a BUY executed, as the ASK order was almost immediately removed after it was placed.
So, a mirage was being created.
But, 30,000 shares were smashed into the two exchanges in the last 7-8 minutes, which actually DID smack down the price maybe an additional 5 cents. AND, prior to those last few minutes the price had been 'walked down' around five cents, prior to the final smack down. The net effect was about a loss of ten cents in the share price of both issues NFG/NFGC in the final 29 minutes or so of trading, yesterday.
Why would a Big Player do this?
The answer is surely the Short Position. Remember, it takes One Big Player to be able to have the SIZE to do this, and to coordinate his activities to make such a charade seem real. If you had a highly liquid stock, this wouldn't work, likely. The shares you were dumping and flashing for sale would likely just get absorbed by buyers without much effect on the price.
Thus, my observation as to what was happening in the last 20 minutes or so of yesterday's trading was that it was the Short Position creating this charade, and the shares dumped on the market were additional Short Sales, i.e. shares the Short Player DOESNT actually have, but borrows, and thus INCREASES his Short Position.
But, if the Short Position Holder is actually trying to COVER his SHORT Position, this tactic makes him LOSE progress in COVERING his Short position, so why do this?
The answer is that it is a tactic. The Short Player is trying to make the stock look weak. By doing so, he may SHAKE the confidence of some share owners, make them think something may be wrong, and get these 'weak hands' to sell shares to him. Thus, he is willing to GAMBLE that the additional shares he just Sold Short, would not only lower the share price, but would also induce shareholders to sell him MORE shares than he sacrificed in selling short to engage this tactic. And, if that is indeed what happens, his tactic worked. But, if sellers FAIL to sell him more shares than he sacrificed in selling more shares Short, then the Short Players tactic failed.
That is what I belive was happening during those last minutes of trading yesterday.
But, there is MORE to this story.