Burning down the house —
Our Capstone short is up 71%
by Christian DeHaemer
Now we're cooking with gas. Capstone (CPST:NASDAQ), our favorite over-hyped alternative energy company, continues to lurch toward its doom. If you followed Taipan's advice and shorted Capstone at US$90 less than two months ago, you'd be up a cool 71%. CPST is presently trading at US$26.50 and falling.
I love the over-the-top arrogance of this company's leadership. As I write this, the company has offered an additional five million shares in a secondary offering at US$30 a share.
Of the five million shares sold, 714,286 were sold by the company and 4,385,714 were sold by shareholders. Capstone even had the nerve to grant the underwriters an option to purchase up to 750,000 additional shares of common stock to cover over-allotments.
Overhang of supply
The sad truth is that the deal was cut by 30% at the last minute and there still were not enough buying to hold the stock above the opening bid. And it's far from over. Those foolish enough to subscribe to the secondary are flipping their shares, sending Capstone into the mid-twenties.
You'd have to be a fool to be long this stock. On the first trading day after Christmas, 64 million additional shares currently held by insiders will become eligible to trade. This "Flying V" scenario may be enough to send Capstone into the single digits. I plan to cover sometime before the first of the year.
The "Flying V" lockup trader
The "Flying V" system works so well that my last picks are four for four already. The Taipan Traders among you are familiar with my Handspring (HAND:NASDAQ) short.
I recommended that Traders short Handspring above US$90 a share. The stock immediately dropped to US$69 before climbing back into the high US$80s. This set the trend, and the massive daily volume — 25% of the float on average — insured that this would be a volatile position.
But I had one important piece of information in my favor. Information that the large Wall Street institutions don't want you to know about. I knew that on December 17, 2000, more than 100 million shares held by insiders would become available to trade.
Institutions know this as well, but you won't see it in any research report containing a "strong buy" recommendation. You won't see it during the blitzkrieg of BS following the Comdex convention in Las Vegas.
For those who don't know — Comdex is the yearly Mecca for geeks and analysts who pore over this year's new tech toys and award laurels and high stock valuations to the winners. You might remember that at last year's Comdex, Corel (CORL:NASDAQ) announced they were going into the Linux field. In the following weeks their stock shot from US$3 to US$44. Today they are back to US$3.
Feel the power
That's the traditional power of Comdex. But not this year. HAND unloaded both barrels of analyst "strong buy" recommendations (from the same companies that took them public, of course) and positive press releases.
Their goal is to hold up the stock long enough for the insiders to get out on Dec. 17, 2000. But it won't work. I'm short and sure. We're up 28% with more to come.
It works long too
But that's not all. Those of you who subscribe to The Hammer are already aware of MetaWave (MTWV:NASDAQ) — a company that has found a less expensive method of increasing bandwidth for mobile data transmission using "smart antennas."
MetaWave is a stock that fell from US$40 to US$10 over the past few months based on an overabundance of stock. But I believe they have a viable product in an emerging field. This is a speculative stock that could go ten to one if it meets expectations.
And due to the massive selloff, I was able pick it up at a market value of only US$350 million — or US$10.50 on the share price. I put a buy out when the stock hit one of my key TA indicators and it immediately shot up to US$14.50.
I didn't sell because I believe that in the next two months this share price will be in the US$20s. As I write this, a second buying opportunity is arising as it comes back and retests its low. If you can buy this stock under US$10.50 I suggest that you do so.
ViroLogic rocks
You remember ViroLogic (VLGC:NASDAQ) from last month's Taipan. They make tests to evaluate and customize the best treatment combinations for HIV and Hepatitis C patients.
ViroLogic recently announced that they have identified the first-ever clinically relevant HIV drug resistance cutoffs. This new development defines the maximum level of reduced drug susceptibility at which a patient still has a high probability of successful response to treatment. At resistance levels above the cutoff, patients are unlikely to respond to treatment.
ViroLogic's cutoffs were determined by using clinical trial data to evaluate the impact of changes in drug susceptibility on treatment outcomes. Before now, it was difficult to know what level of reduced susceptibility corresponded to decreased treatment success rates.
The upshot is that ViroLogic has a battery of test that work and are in high demand. And due to the recent selloff in conjunction with a "Flying V" event, you were able to buy this stock at or near its lows. This is a company that grew sales 948% last year.
The "Flying V" of profits
I'm telling you this because I'm confident that my simple supply-and-demand equation for over-hyped stocks is understandable, can be and has been backtested, and, quite simply, it works.
Included with this month's newsletter you will find detailed information about how you can profit from this system, time and time again. I urge you to check it out.
And pay attention to this website. Your 100+ page Annual Forecast Issue is due any day. I hope you and yours have a blissful holiday season.
In addition to his duties at Taipan, Chris DeHaemer is the editor of The Hammer.
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