Chart: Zignals.com

by Paul Springer

Commercial vehicle financer AutoChina International Ltd. (AUTC) started out the year with extreme volatility driven by accounting questions, and now the liquidity of the company’s trading is drying out.

AutoChina shares plunged 39% Tuesday on news of a delisting notice from Nasdaq. Sometimes these notices are not the end of the world, and when stock price is the issue, the regulator sometimes allows issuers extra time to let the price rise.

In this case, the situation is more dire. The company sought more time to file its already late annual report for 2010, and Nasdaq said no dice. In addition to the late report, Nasdaq says, the company has another problem in the way of an SEC investigation.

AutoChina said in a release that the Nasdaq determined that the request for more filing time “ was not warranted and that the Company’s securities would be delisted from Nasdaq on September 19, 2011 unless the Company appealed the determination.”

The company said earlier in the summer that it would have to restate its 2009 earnings.

Trading volume has already been falling off for months before the advent of the delisting notice. The situation presents a twist on the numerous others where China-based companies were accused, rightfully or not, of having no real business operations.

The company is a real company with ongoing operations. In the case of AutoChina, it seems, the problem is that no one really knows what’s going on.

In June, the company’s notice of an SEC investigation came with the statement that the classification of earn-out shares as derivatives would affect reporting to an unknown extent. “The Company has not yet determined the exact effect of this potential change to its previously reported financial statements,” AutoChina said in the regulatory filing.

In February of this year, AutoChina shares fell 10%, The Motley Fool says, after a critical Forensic Factor report was linked by Zero Hedge.

About a month later, Seeking Alpha described a volatility rollercoaster ride in which AutoChina stock fell after another Forensic Factor report, then rose about 60% in a two-week short squeeze.

In addition to confusion generated by accounting for vehicle revenues and the situation with the earn-out shares, some questions lingered after the company announced changes to its structure in this regulatory filing:

As previously disclosed, AutoChina is in the process of converting its corporate structure from a variable interest entity, or VIE, structure to a direct ownership structure.  In September 2010 and in connection with this restructuring, AutoChina established a new wholly-foreign-owned enterprise in China, named Ganglian Finance Leasing Co., Ltd., or Ganglian Finance Leasing.  Ganglian Finance Leasing is in the business of leasing commercial vehicles.

What was that? Allow the company to explain:

In December 2010, AutoChina increased the paid-in capital of Ganglian Finance Leasing through its VIE, Hebei Shijie Kaiyuan Auto Trade Co., Ltd., or Kaiyuan Auto Trade, and converted Ganglian Finance Leasing from a wholly foreign-owned enterprise to a Chinese-foreign joint venture.  . . .Thereafter, Ganglian Finance Leasing obtained the business licenses required to engage in the vehicle leasing business and commenced to lease commercial vehicles directly.   On May 31, 2011, Ganglian Finance Leasing was converted back to a wholly foreign owned enterprise and is currently 100% owned by Fancy Think Limited, a Hong Kong company and AutoChina’s indirect wholly-owned subsidiary.  In addition, on June 30, 2011, Hebei Chuangjie Trading Co., Ltd., or Chuangjie Trading, was converted from a VIE to an indirect wholly owned subsidiary of AutoChina, and is currently 100% owned by Ganglian Finance Leasing. . . .

There’s more, but no one’s listening. The company may have had some accounting issues, but initially the conversation over accounting and the company’s valuation was a spirited one with plenty of participants on both the long and short sides.

Now the company is having trouble doing its own accounting and explaining its baroque corporate structure. The conversation is dying down, and apparently few traders feel comfortable with any trading thesis for the company.

AutoTune has been on Nasdaq’s list of volume decreases day after day now, and with daily volume down to the thousands or even hundreds, delisting might be moot.

by Paul Springer

Mice played a central role in the 100% jump Spherix Inc. (SPEX) stock took this morning.

After the close on Thursday, Spherix announced “that its drug candidate, SPX-106, achieved statistically significant reductions in VLDL and LDL cholesterol when administered in combination with Dtagatose (SPX-106T) for nine weeks to genetically engineered mice prone to dyslipidemia.”

LDL is the “bad” cholesterol. VLDL is bad, too, but can’t be measured directly in humans, according to Mayo Clinic cardiologist Dr. Thomas Behrenbeck:

There’s no simple, direct way to measure VLDL cholesterol, which is why it’s normally not mentioned during a routine cholesterol screening. VLDL cholesterol is usually estimated as a percentage of your triglyceride value.

So what’s with the mice? The testing on mice indicates the new treatment has not reached the human trials stage yet, Spherix said in a statement:

The first studies designed specifically to test SPX-106T are nearing completion and results will be announced this fall. The Company plans to start an initial human efficacy study in the first quarter of 2012.

Biotech stocks routinely take a rocket ride when testing hits key clinical trial milestones or when the U.S. Food and Drug Administration approves results or gives the greenlight for sale to the public.

Success in a rodent tests is good news. But a 100% jump on these results seems like an indication of the panic gnawing at markets this summer.

This is a company that faces monstrous competition while still offering interesting possibilities. A number of cholesterol treatments are being aggressively marketed by huge corporations – too aggressively according to critics like this one, who notes a campaign to put chewable cholestrol drugs in the mouths of school children.

The currently available drugs also come with a host of possible side-effects. Clearly, a treatment with fewer complications could tap a huge market. But a study on mice doesn’t get you there.

Still, Spherix is not a one-trick pony – it’s also working on a diabetes treatment (D-Tagatose). The company said it’s seeking  a pharmaceutical partner for continuing work on the diabetes drug. The partnership could expedite development or even lead to a buyout that would cash out Spherix shareholders.

At this point, though, it remains unclear who is buying Spherix at twice yesterday’s price.

Maybe it’s the mice. After all, they are the ultimate insiders in this situation.

by Paul Springer

While equity markets were looking up Wednesday, continuing volatility makes the current environment a dangerous place in which to release bad news.

For those looking for distressed buys or short selling opportunities, the companies bear watching:

Netflix (NFLX) affronted users again, only days after announcing that it parted ways with Starz Entertainment. Now the company has limited online streaming, which was recently repriced in a way that also aggravated users and investors alike.

The limitation of streaming was announced along with the repricing, but Stop the Cap! reported that over the Labor Day weekend a glitch caused Netflix users to suffer streaming limitations more restrictive than what was indicated in the new pricing plan. Inaccurate reports about the extent of the limitations continue to inflame subscribers.

Shares were down 2.5% mid-day Wednesday, after dropping 9% in one day the previous week when the breakup with Starz was announced.

BofA has plenty of problems already, FOX Business Network’s Charlie Gasparino questions the company’s efforts to heal itself. Listen to a report here, and read Gasparino’s contribution at The Huffington Post here. See also Ft.com/alphaville’s report on BofA’s “de-layering bloodbath.

This list of down-in-the-dumps stocks from Minyanville ranges from HP (HPQ) to Netapp (NTAP) and First Solar (FSLR).

Enterprise software company Deltek faces dismal prospects due to government cost cuts and other factors, a Seeking Alpha blogger says. “My only recommendation to investors holding this company is to make sure they are checking the news on a daily basis,” the post says.

VASCO Data Security International also faces a murky future after receiving a one-two punch combination in the form of a security breach and an analyst downgrade. The company said in a regulatory filing at the end of August said the “intrusion” did not affect its core technology. On Wednesday, Wunderlich Securities downgraded the company and chopped its target price by more than half.

Zack’s says VanceInfo Technologies (VIT) is in a downtrend, which today involved a downswing while the S&P 500 was heading up.

Some stocks in the hardy utilities sector have taken a whupping too, according to Wall St. Cheat Sheet. Among that minority of utility issuers is

In other asset class news, gold got pushed down by a stronger dollar Wednesday. “Just when everyone had left the U.S. dollar for dead, abandoning the world’s reserve currency for alternatives like the Swiss franc and gold bullion, it has risen from the dead,” msn.money reports.

Chart: Zignals.com

by Paul Springer

Deer Consumer Products (DEER) got whipsawed this week as its wrestling match with Alfred Little continued.

On Tuesday, Deer shares lost 15% as the company announced significant developments in a lawsuit against Little. Around midday today, the shares had gained about 14% on considerably less volume than on the previous day.

The “new developments” described in Deer’s news statement didn’t seem all that new. But the account highlights a trenchant “he said, she said” situation that characterizes the chaos surrounding many stocks issued by companies based in China.

Earlier in the year, when parties with interests in some of these companies started writing about issuer misrepresentation, the critics blazed out of the gate wearing white hats. Much genuine devilry was revealed, and it looked like a lot of the issuers were wearing the black hats.

Now, in some cases, it seems like both sides are wearing ski masks.

Deer’s release has some pointed questions about Little’s identity:

On March 28, 2011, Deer filed suit against short sellers and certain bloggers including “Alfred Little,” a now-admitted fictitious figure, alleging an orchestrated scheme to manipulate and depress Deer’s stock. Since then, “Alfred Little” has failed to answer the complaint, changed his identity from a real person to a web-site, and attempted to extort the company by threatening to publish more false defamatory reports until the company dropped its claims against these defendants.

The release goes on to attribute its stock woes to naked short selling. Maybe there is some naked shorting going on. Then again, many a microcap has blamed its own management and operational problems on non-existent short selling boogie men.

Complicating the issue here is the conflict inherent in using the Internet to disseminate journalistic – or perhaps quasi- or pseudo-journalistic – publications about companies the writer has a long or short position in.

A further complication arises from anonymity. Who is Alfred Little? That seems to be a tough question to answer. Alfred Little is an anonymous blogger on Seeking Alpha, which has an anonymous blogger policy.

Alfred Little’s website was not online this morning. But ZeroHedge provides a copy of the latest report on Deer and Harbin Electric (HRBN).

The report takes issue with what it calls Deer’s “Disappearing $21 million Land-Use Rights Rebate.” Here yet another complication arises: The Chinese governmental subsidy agencies have some transaction reporting conventions that seem peculiar compared to U.S. customs. Considerable information in the report argues for an accounting error, and the report alludes to conversations with Chinese officials to get more information on sale conventions.

However, Deer’s statement says it reported everything correctly to the SEC: “Despite recent claims of certain bloggers, who Deer believes to represent the interests of short sellers, Deer confirms that its disclosures in such filings were accurate, complete and reflect the commitment of management to provide the public with full and fair disclosure.”

It’s still a “he said, she said” situation unless you have the time and language skills to check up on every shred of Alfred Little’s claims. The volatile market around Deer suggests that investors are not delving into the details —they’re just selling in a market for a stock that’s oddly volatile even when there is no news.

The mere mention of Alfred Little in a statement intended to relate positive developments was followed by a decline in price.

The influence of anonymous market-moving bloggers suggests the need for a new term: naked short reporting. If somebody’s publicly disseminated words can influence trading in a big way, he or she needs a real byline.

At this point, just about anybody could pick a Chinese reverse merger company and release a huge, negative report that no one will read fully. It’s pretty clear what the initial market reaction would be, regardless of what hat the issuer is wearing.

by Todd Shriber

“If at first you don’t succeed, try, try again” is a phrase that was popularized during the 19th century. But its value remains evident in the business world of the 21st century. For U.S. coal company Peabody Energy (BTU), not only does it make for great alliteration, it is statement of fact: Peabody’s persistence has paid off.

In a $5.2 billion joint bid with ArcelorMittal (MT), the world’s largest steelmaker, Missouri-based Peabody has finally gotten Australia’s Macarthur Coal to succumb to its overtures, the BBC reports. While $5.2 billion is arguably in the middle road when it comes to deal sizes that get bankers’ juices flowing, Peabody has endured its fair share of drama on its way to the altar with Macarthur.

Macarthur, a global maker of pulverized coal, finally accepted the Peabody/ArcelorMittal bid late Monday night, perhaps ending a takeover soap opera that has stretched over a year. Peabody tried to acquire Macarthur last year in a solo bid for $3 billion, according to Reuters. But the U.S. company was sent packing because Macarthur viewed that offer as too low.

Proving it was once bitten, but not twice shy, Peabody teamed with ArcelorMittal for a far more generous offer that was announced Aug. 1. But even that wasn’t enough to make the Aussie company swoon. Tired of the hand-wringing and Macarthur’s insistence that it could find a better offer, Peabody took its offer directly to Macarthur’s shareholders just days later, The Economic Times said.

Well, no better offer materialized, and Macarthur said it will acquiesce to the Peabody/ArcelorMittal deal.

Give Peabody some credit for its persistence, because this might just be the tonic to give its battered stock a lift.

by Paul Springer

Shares of Miller Petroleum (MILL) rose 60.79% on unusually high volume Monday, when the company announced the end of problems that arose when management accidentally filed a Form 10-K prematurely at the end of July.

A revised 10-K filed Monday said that, “The July 29 Filing was the result of a mistake by Company personnel.” Unidentified employees filed the annual report under the errant belief that the firm’s accountant had finished its review of the numbers.

“None of the Company personnel involved in the July 29 Filing intentionally or knowingly violated any Federal securities regulations,” the filing said.

This information apparently impressed some folks. The company has a three-month average daily trading volume of just under a million shares, but over 3.9 million traded Monday. The stock closed at $3.65. The shares briefly rose above $8 in mid-July.

In terms of earnings, it’s not hard to see why Miller stock fell after the July 29 10-K filing. The company recorded a loss in that report of $4.44 million for the year ending this April, compared to net income of $251 million for the year ending in April 2010. Diluted earnings went from $8.34 in 2010 to a loss of 12 cents to the year ending this April.

Shares started selling off hard before the July 29 filing. Prices dropped from a $7.38 close on July 26 to a $7.04 close the next day. On July 28, prices skidded to $5.40 on volume of over 5 million shares. More than 11 million traded the next day, when the 10-K was filed and the stock closed at $4.41. This month, prices wallowed down into the $2.50 range.

Monday’s filing confirmed an interim filing that indicated earnings numbers similar to those of the accidental filing on July 29. The latest numbers state a net loss of about $3.88 million for 2011, versus a $251 million net gain for 2010.

Monday’s price explosion suggests that investors are hoping to see Miller Petroleum back at that $8 dollar level. That seems like a pretty questionable assumption. The recent year did outpace 2010 in revenues, which quadrupled from $5.9 million in 2010 to $22.8 million in 2011. But costs and expenses more than doubled from $17 million in 2010 to almost $40 million in 2011.

And a lot of 2010’s gain came from acquisitions, not organic growth.

Anyone who expects this oil company to make another move like Monday’s is likely to get severely tarred.

Chart: Zignals.com

by Paul Springer

Share prices of organic light-emitting diode (OLED) technology specialist Universal Display Corp. were up 15% to 24% at various times in high volume trading today.

The jump was substantial, especially for a company that has lost about $20 million in each of the last three years. Two related pieces of news were responsible for the increase. The company announced a licensing agreement with Samsung Electronics, and that in turn led to a ratings change from a Brigantine Advisors analyst.

According to a review of the Brigantine report in Barron’s, the analysis sees an overall increase in the use of OLED technology. As for Universal Display in particular, the analyst said, “new customer relationships will materialize in the next 6-12 months.”

The prospect of something that’s going to “materialize” sounds a little thin. Exactly how thin is tough to say. Reuters reports that terms of the agreements, one for licensing and one for sales, were not disclosed.

Investment bank Cowen also likes the deal, according to The Fly on the Wall, which provides a little more information:

Cowen said Universal Display’s strategic alliance with Samsung shows the value of its patents and technology and is a positive surprise since the deal is a fee payable as opposed to unit royalties, as expected. Shares are Outperform rated.

Universal Display has a lot of OLED patents. The Korea Times notes the benefit of the patents for Samsung: “The agreement is more than crucial for Samsung Mobile Display because the Nasdaq-listed UDC was holding more than 1,000 patents in phosphorescent materials, which are vital for organic LED or OLED screens.”

If OLED technology replaces LCDs, and if Samsung really needs those patents, Universal Display could thrive. Those are farily big “ifs,” and there’s one other. What if someone comes up with a way to make OLED screens without Universal Display’s patents?

Plenty of people are working on the technology, a source told The Korea Times:

“The developments could allow firms based in Asia, such as Samsung and LG, to manufacture OLEDs without having to pay royalties to UDC for materials used,” said a fund manager from a U.S.-based top-level investment bank in Seoul.

by Paul Springer

You’d think the business of selling water would be relatively straightforward and free of surprises, but this week’s volatile market dessicated Primo Water Corp. this morning when it fell short of earnings expectations.

The company saw fully 55% of its market cap disappear Wednesday, when it announced a second quarter loss even as it upped future guidance substantially. Half way through the day, Primo shares were trading around $6, or almost 50% below the price of its secondary offering in June.

Primo reported non-GAAP pro forma fully-taxed net loss of a penny per share, versus a consensus of a $0.04 gain.

This comes at a time when the company’s second quarter sales were up 70% over the same period last year.

The company sells its water through thousands of retail stores. Two large chains postponed plans to sell Primo products, leading to reduced earnings last quarter.

Primo Water’s experience is similar to a lot of other companies announcing earnings in the post-debt deal markets, which so far this week have been like a roller coaster with seats made out of razor blades.

Look at Primo water compared to the other big loser of the day, Adventryx (ANX).  This pharma company blew a clinical study so badly that one might conclude the company has no real business. The company was unable to provide the FDA with reserve samples of the drug that was supposed to be getting tested, according to a release.

Primo definitely choked on its earnings, but Adventryx looks like it may well have choked to death. Yet both received the same Draconian treatment from the market.

As panicked investors are putting money into gold at insane, all-time highs and treasury securities at abysmally low yields, it’s time to start picking through the wreckage for gems sunk in the dung.

by Paul Springer

While the extreme volatility of the post-debt deal trading environment has managed to avoid a Flash Crash repeat, freakish swings and unusual volume in some issues are bringing good news and bad news for high frequency traders.

Profits are rolling in, just as subpoenas are going out. Clearly, in times of investor stampedes when the herd instinct takes over, all kinds of traders are stepping on clueless retail investors.

One successful HFT player in these volatile markets is Tradeworx, The Wall Street Journal says:

In recent days, the high-frequency operation at Tradeworx Inc., a Red Bank, N.J. firm, juggled its largest daily volumes since its 2009 launch, resulting in some of its most profitable days on record, according to its founder, Manoj Narang.

Information movement in both trades and messaging has been heavy, The Financial Times reports:

“According to Market Data Peaks, a U.S. company which measures trading traffic, messages were being sent at the rate of 4.7m per second on Monday, compared with 1.5m per second in September last year.”

HFT has its good side, which includes providing liquidity. But the secrecy surrounding the algos can add an air of mystery – or skullduggery.

Themis Trading runs down the good, the bad and the ugly in a recent post. Aside from healthy HFT, Themis says, there is serious potential for the bad and the ugly:

Predatory HFT is the most damaging. . . . This style of HFT exacerbates price movements up and down, and is fed by exchanges and dark pools who court their volume. When you place a bid to buy a stock at 40 cents, with discretion to pay up to 43 cents, and that discretionary amount is flashed to SLP’s and ELP’s, who in turn take the stock ahead of you and run it 15 cents higher, they are not making 6 cents per hundred.

Nanex, which is a major information conduit in HFT, says it has discovered an algo called “The Disruptor” that likely was at the root of some e-mini distortion:

A certain HFT algorithm that we affectionately refer to as The Disruptor, will sell (or buy) enough contracts to cause a market disruption. At the same exact time, this algo softens up the market in ETFs such as SPY, IWM, QQQ, DIA and other market index symbols and options on these symbols. When the disruptor strikes, many professional arbitrageurs who had placed their bids and offers in the emini suddenly find themselves long or short, and when they go to hedge with ETFs or options, find that market soft and sloppy and get poor fills. Naturally, many of these arbitrageurs realize the strategy no longer works, so they no longer post their bids and offers in the emini. Other HFT algos teach the same lesson — bids or offers resting in the book will only become liabilities to those who can’t compete on speed.

This whole scenario results in the illusion of liquidity, Nanex says.

One thing that’s not an illusion is increased attention from regulators. The Securities and Exchange Commission has subpoenaed a variety of HFT firms, according to The Wall Street Journal.

Various regulators are still looking at unanswered questions about the Flash Crash, and some of those questions continue to nag the SEC. Headfake trades where orders are entered and canceled abruptly are of particular interest.

The wheels of justice turn in slow motion, so it will be a while before we know whether the SEC is prepping its own “Disruptor” – or the subpoenas just create the illusion of an investigation.

by Todd Shriber

Until earlier this year, Playboy Enterprises was a publicly traded company and enjoyed all of the responsibilities and obligations that come with that. One of the burdens of being publicly traded is there is always a chance someone will see fit to engage in some insider trading, and Playboy appears to be no exception.

Bolstering all those jokes about corruption in Illinois politics, William A. Marovitz, a former Illinois state legislator and Playboy founder Hugh Hefner’s son-in-law, has gone the way of Raj Rajaratnam and gotten ensnared in an insider-trading scandal involving Playboy shares.

The Securities and Exchange Commission sued Marovtiz, accusing him of insider trading. Marovitz was accused of profiting to the tune of $100,000 on information he got from his wife, Playboy CEO Christie Hefner, Hugh’s daughter, according to The New York Times.

Marovitz has agreed to pay $168,000 in penalties, disgorgement and interest to settle the civil case, the Times reported. That’s good news for the SEC, but the case still leaves some questions to be answered. Citing the filing, the Times notes Marovitz was warned by both his wife and Playboy’s general counsel to not engage in insider trading, but he allegedly proceeded to anyway.

Why did his wife continue to discuss material information about Playboy around him knowing there might be negative ramifications? After all, this wasn’t a one-time affair. Marovitz allegedly traded Playboy shares on insider information from 2004 to 2009, the Times article said.