The Short Squeeze On Sabby Continues - ALF, BCTX, GOED, GOVX

On June 15th we announced our four top microcap short squeeze picks to try to take down notorious small cap manipulator Sabby Management. They were Alfi, Inc. (ALF), BriaCell Therapeutics Corp. (BCTX) (BCT.V), 1847 Goedeker Inc. (GOED) and GeoVax Labs, Inc. (GOVX). Wallstreetbets censors DD on microcap stocks so we did our write up here instead. On June 16th we told you how buying the warrants were beneficial to creating a squeeze as funds use warrants in their inventory to facilitate shorting of the stock. Buying those warrants limits that ability. And on June 20th we told you to focus on ALF as we had good reason to believe that was the one on the brink of a squeeze. 

Question: Why these four stocks?

Please read those three write ups in detail if you want to understand the background of this movement. Otherwise just use the prediction on ALF as a sign that we might know what we are talking about. These four stocks were specifically chosen because of the following:

1. They are all recent NASDAQ or NYSE listings.

2. They have already raised funds, so there is no need to dilute in the near future.

3. They all have excellent business prospects with recent great news or news expected in the near term.

4. They all have publicly traded warrants. 

This combination works best because a. as the companies have money they won't be looking to raise funds again, which often kills rallies and lets shorts off the hook b. they haven't been listed very long, so shorts haven't had a chance to make profits off of them which makes forcing them to close at a loss much easier and c. shorts use warrants as insurance against shorting the stock. If retail investors buy up all the warrants they will no longer have that insurance to relentlessly short the stock. 

One thing that we did not touch on is that while Sabby and similar funds are the lowest of the low when it comes to short selling small cap stocks in the United States, Canada is on a whole other level. Naked short selling is rampant in Canada despite supposed laws against it. Read this article to get an idea of how bad it is. This adds an added layer of opportunity for a squeeze on BCTX, which also trades in Canada under the symbol BCT. In addition to the massive opportunity for a squeeze based on a spike in short interest that we will talk about in a bit. 

That squeeze on ALF happened while GOED continues to add pressure:

ALF absolutely destroyed the short sellers this past week, with the stock price rising more than doubling to $17.10 and hitting as high as $20. The leveraging effect of the warrants we talked about was also demonstrated as ALFIW closed Friday at $11.89 and hit as high as $15.50, quadrupling its price from $3 this week. The warrants are once again trading below their intrinsic value as the strike price is $4.57. The short sellers are willing to sell off their inventory of warrants to get people to take advantage of arbitrage by buying up warrants and short selling stock. The easiest way to combat this is to continue to buy the warrants so that they don't drop below their intrinsic value.

GOED also had a great week, with the end result being summarized in the chart below since our first write up on June 15:

There is little reprieve for short sellers as the major losses taken on ALF and GOED are barely noticeable on the mostly flat prices on BCTX and GOVX during that time. While GOED has "only" risen 40% in those ten days, keep in mind that its market cap is much bigger than the other three. The $127 million increase in market cap means that shorts lost nearly as much on a dollar perspective as they did on ALF. That's what you need to pay attention to in this short squeeze movement. When Ortex announces short data on large cap stocks, they always announce the dollar value of those losses as opposed to percentages. The former paints a much clearer picture of the mounting losses. 

Massive short position on BCTX, it's the next candidate to explode on a squeeze while also keeping the others strong

Yahoo Finance has updated short interest to June 15 for the three NASDAQ listed stocks. NYSE-listed GOED's short interest is still as of May 28:

We think the ALF number is inaccurate, as the big spike in price and volume came on the 15th. Shorts could have been underreported for that day, plus there are very likely more shorts that aggressively came in after that date. One of these numbers stand out like a sore thumb. BCTX's short interest has ballooned to 2.9 million, which makes sense based on the trading we have seen on June 2, though this number surprises even us. Stats from Yahoo Finance:

This is evidence that the hedge funds are using their inventory of warrants to short the stock. The arbitrage that occurred when the warrants were priced below their intrinsic value obviously worked. Traders were incentivized to buy the warrants, short the stock, exercise the warrants in order to cover the short and capture the variance as arbitrage in order to kill that rally. This is also evident by the press release on June 10 where BCTX disclosed that 2.4 million warrants were exercised for stock. However, given the timing of that press release, these shorts are in addition to any shorts that covered by exercising the warrants. Those positions were all closed off by June 10. This 2.9 million in short interest is likely insured against the remaining warrants. 

Make sure to push forward while we have the momentum

We are on the edge of pushing these funds to a major short covering across their entire portfolio. We have to push further by creating a squeeze in another stock ASAP.  Death is knocking on the hedge fund scammers' door and is coming for BCTX shorts. The only reason why BCTX went down over the last ten days was the newly issued shares from warrant exercises being absorbed into the float. If you include this increase to shares outstanding, the market cap actually rose. But now those warrants are out of existence and can no longer be used as insurance to short the stock. 

People are smartly buying up the warrants. Despite the stock dropping 11% from $6.03 to $5.37 in the past ten days, the warrants have actually risen slightly from $1.63 to $1.80 during the same time frame. Buying these warrants out of the hedge funds' inventory will increase the likelihood of the squeeze. 

Let's say a fund shorted 500,000 BCTX shares and owned 500,000 warrants. If the stock was to suddenly spike to $20, there is not too much issue with this for the fund. They just cover their short by exercising the warrants at $5.31 instead of having to worry about covering at $20 on the open market. However, if people buy up the warrants now, the fund is enticed to reduce its risk exposure by covering their shorts rather than risk a massive blowout like what happened on ALF this past week. 

Obvious question: Why would the funds want to sell the warrants if that's the tool they use as insurance to short the stock?

They wouldn't, not all of them necessarily. But if you read our previous pieces, they might not have a choice in a squeeze situation. Note that along with ALF and ALFIW, BCTXW also traded below its intrinsic value briefly recently, though not quite as extreme as ALF. What does this mean?

The BCTXW warrants have a strike price of $5.31. So in theory the warrants should never trade below $5.31 under the stock price or else there is arbitrage. For instance, if the stock goes to $10 and the warrants trade at $3, someone could buy the warrants at $3, sell or short sell the stock at $10, pay $5.31 to exercise the warrants and buy back their short of the stock at $10 for an effective price of $8.31, pocketing $1.69 per share in arbitrage. This is exactly what happened on June 2nd when the stock price hit $9 but the warrants traded well below intrinsic value. Then we saw the warrant exercise announcement a week later.

The funds don't WANT to sell their warrants, but they will in times of desperation to put a lid on the stock's price. Warrants were sold below their intrinsic value so that investors took advantage of the arbitrage, selling or short selling the shares to try to put selling pressure on the stock price. And on June 2nd it worked. However, now there are only about 3 million or so of the BCTXW warrants left. If retail investors buy up shares and warrants, what happened on June 2nd to stop the stock's momentum might not work this time around. It could explode like ALF did, just as we predicted.