TSXV Made in Canada Problem – Shorting NKTX

Struthers Report V30 # 1. 3 and VET

Welcome and thank you to all the new, smart, savvy and contrarian investors who have joined my stack. Please share and subscribe while this remains free. I sent this to my paid list yesterday, but really nothing is time sensitive. We had already sold NKXT as per my January 8th substack.

I would like to highlight some more, how unusual this destroyed junior market has become in Canada only. Next to Canada, the biggest mining resource market is Australia. Yesterday I saw news that a mining junior did an IPO there and soared over 80% on it's first trading day, that is simply unheard of in Canada so I decided to look at their mining market.

While the TSX Venture index just bounced off it's 2016 lows this past November, the other big junior mining market in Australia is totally different. Their metals and mining index bottomed in mid January 2016 at 1685, today it is up at 6205. That is a 268% gain while today the TSX Venture is up just 15% from the 2016 low.

Here is a chart of the Australian metals and mining index.

Gold bottomed in early 2016 at $1050 and is $2035 today so up 94%. Gold mining stocks usually out perform the metal so makes sense the Austrian index is up 268%.

The XAU index (Philadelphia gold & silver) that has been around a long time in the US and bottomed at 40 in early 2016. Now it is at 120 for a 200% gain. I show the chart from the year 2000 to highlight the bear market from 2011 that was the worst in history, because the XAU even took out it's historic low of 2000 dropping -83%.

Again, I say, we have a made in Canada problem. And that is unregulated excessive short selling.

Rule changes to favour short selling were made over 10 years ago to accommodate market makers and the banksters to manage the prices of ETFs to their relative market they tracked. There is nothing wrong with this and is legitimate. The down tic rule was removed so market makers could drive a stock or ETF down. They don't have to borrow stock, they are given a grace period for naked shorting and they don't necessarily have to report all short positions.

In Canada those market makers would be the banks, brokerage houses and some other large trading entities. In the US, the number I saw for market makers was either about 400 or 600, either number is large.

What happened is the market makers took advantage of the Canadian junior market and started using the other trading platforms (Omega, NEO, CX2, Chi and more) not available to retail investors and their computer programs to initiate a short selling strategy across the board on all stocks. About half the trading volume occurs on these other platforms that retail investors do not see. I pay over $100 per month at Stockwatch to get the data. And worst yet, Canada is the only market with so lax short reporting, an analyst cannot even track it. We get short trading data twice a month and a lot happens on a daily basis in between those reports and the short sellers take advantage of this.

In Australia and the U.S., the short selling is reported on a daily basis. In Australia the short trades are reported 4 days after they take place so it is 4 day old data compared to 3 weeks in Canada. The Canada twice a month report, it takes about a week after the cut off date until we see the data.

The U.S. is the best as their short selling data is published every day and reported. For example I looked up short trading data for NKTX before 7AM Tuesday and I can see Monday’s short trading.

Nkarta NKTX traded just over 46 million shares yesterday, but only has 47 million shares outstanding and over half the stock is tightly held. How can the float trade 3 times in a day or the total number of shares in one day. The only way is naked short selling, but at least in the US we can see it and know what is going on. The above chart shows daily trading volume and short sale volume. They show volume close to 30 million but it only looks at trades reported to FINRA.

The best way to analyze this is the percentage or short volume ratio. Normally stocks will trade with 10% to 20% short volume. Yesterday 50% or half the trades on NKTX were short trades. They do this to limit how high the stock would go otherwise. The best rule of thumb when you look at this short data, if 40% of the volume or more is short volume, you have a shorting play on the stock.

Anyway, for NKTX, I will use Monday's closing price of $10.73 as the sell price on our selection list.

I give credit to those fighting for regulatory change in Canada, like Save Canada Mining, but I don't give them very good odds of success. The banksters have the regulators in their back pocket and too much money is being made off the accounts of retail traders.

Perhaps a good start would be reporting short trades in Canada on a daily basis. At least with this we could see, oh Zonte traded 120,000 shares yesterday and 50,000 were short sales. We would at least know how much shorting is occuring.

It is not all gloom and doom, junior stocks can still move up if a lot of buying comes into to overwhelm shorting. The short trading programs will step aside and start the shorting again at higher prices. The other thing that can help fix this is a surge in trading volume. We need to get to a point where over 75% of the volume is on the TSXV or CSE, not the bankster alternate platforms. This would give more visibility and keep shorting more honest. Right now volumes are split about 50%. TSX Venture volumes are at historic lows, imagine if the computer trading volume was stripped off too.

Millennium Index 2023

We did alright with the Millennium Index in 2023. The gain was small at 3.1% but adding in the dividend yield of 5.2% our total return was 8.4%, just above the TSX index. This is just a snap shot of one day so does not mean much. For example the index was up much more in September/October when energy prices were higher.

I do not trade these much as I see these stocks as long term holds for dividends. I usually sell a few each year and buy some new ones. Last year we sold 3 and one was bought out. I added Nutrient and BCE Inc. last year.

This is the list going into 2024. It is only about a week into the New Year so I only updated the price on the ones I have rated a buy (B) and buy on weakness (BW). Mostly the energy stocks that are beaten down.

Vermillion - - - - - TSX:VET - - - - - Recent Price - $15.92

Probably the best buy is Vermilion Energy VET because it is mostly a natural gas producer so is beaten down because of investors poor judgment on lower North American gas prices. However 40% of VET's 2024 natural gas production will be produced in Europe and receive European gas benchmark pricing, which is approximately six times higher than forward AECO pricing and supports the company's peer-leading netbacks.

Vermillion also has some new production coming on stream so is projecting free cash flow (FCF ) at approximately a 40% increase versus the company's 2023 forecast.

VET will also benefit from better tax rates in 2024. On Nov. 30, 2023, the European Union published a review of the temporary windfall tax and subsequent market developments in the energy sector. The report stated that the situation in energy markets is very different from the exceptional circumstances when the temporary windfall tax was initially established in October, 2022, and therefore the European Union has not proposed to extend the mandate beyond 2023.

VET also increased the quarterly cash dividend by 20 per cent to 12 cents per share, effective with the Q1 2024 dividend payable in April, 2024. The current yield is just over 3%.

I like the chart too as the stock has come down to lows and support around $15.20

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