Saturday, April 02, 2011

Short Attack in America

In the U.S. shorting in the stock market is legal. Shorting means selling stocks you do not own. The idea is to short, smear and cover. Many Chinese U.S.-listed stocks are the subjects being utilized this way. The latest is a company known as Advanced Battery Technologies (ABAT).

Many bullish articles have been written about ABAT before a negative one brought it down 42.7% in one trading session. This means that if you have $100,000 invested in the stock, you lose $42,700 overnight. Whether anyone of those bullish articles has anything to do with the negative one is anybody's guess. But one thing is certain. I will never read any article without skepticism, even though it is written by a reputable analyst.

ABAT was doing pretty well. Its price was hovering at around $3.75. As soon as the smear-campaign article was published at :, on 30th March 2011, the price commenced to slide rapidly. At the end of the day, it closed at $2.01 for a lost of 42.7%! This is indeed frightening.

The next day, it plummeted again hitting a low of $1.51! At the time of this post, the stock managed to hold at $2.07.

At Bursa we have what we called "Circuit Break". This means whenever we have a drastic drop of 30% in price, the underlining stock will be immediately suspended pending investigation.

In the U.S., they don't have such a system in place.
Well, such is the scenario there. If you can't stand the heat, please get out of the kitchen.

Talking about short attacks, some stocks quickly come to mind. They are: CEU, CCME and
Yongye. All these companies are small-cap Chinese stocks listed in the U.S.

My advice: Don't invest in Chinese stocks listed in the U.S. unless you have money you want to lose or the skill to match the shorts. Swimming in shark-infested water is dangerous.