Thoughts on JMGE: this is what I posted on my new blog about JMGE.
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JMG Exploration (JMGE) is the most interesting pump & dump in play right now, not that there have been many good ones lately. We can see the stock got a surge in volume in late April, rising the stock from around 0.75 to around 3, and then we have about 2.5 months of dormancy. Normally this would be an ideal pattern to short — we can see the sideways price action, the volume has been practically non-existent lately, and we know that there are plenty of people who need to dump their shares (both bagholders and possibly insiders who are behind the promotion). When buyers are drying up and their are many sellers who need to get out, that’s when we can see a real panic.
The current market cap for JMGE is *only* around $17 million (I say only because usually big budget stock promotions can wind up with stocks reaching 9 figure market caps), and we don’t yet know what (if any) future promotion, like a hard mailer perhaps, is planned for this stock. There is a chance that this one will surprise us all and pull a “LEXG” type move where it goes up to $4 or $5. However, I believe shorting this stock at around $3 represents a superior risk/reward scenario. If more promotion is planned and they do manage to create a short squeeze, you might lose around 0.2/share before you can get out and cover — that’s an acceptable loss. On the other hand, we could see a panic any time where the stock drops all the way down to 2.50 or 2, and then back down to the 1's.
I am currently short on JMGE and in the unlikely event that they do manage to spike this up, I will box my position (go long in another brokerage account so my net position is zero) and look for more shares to short. I don’t even mind if that happens as there will then be even more downside. This stock will crash, it’s just a matter of when. It could be next week, it could be next month, or it could even be in two or three months from now. That’s why I will hold on to my short position for as long as they manage to hold this carcass up.
The nice thing about JMGE is that at $3/share, you can use basically all of the available funds in your brokerage account to short it if you were so inclined, so even if you have a small account you could make a lot of money shorting this before a big crack. Many pump & dumps are good shorts but they are so low priced that you can only use a small percentage of your account funds to short them due to that pesky rule requiring $2.5 in capital for every share you short.
As with all pumped up penny stocks, JMGE has many skeletons in the closet — accumulated deficit of over $27 million, pathetic gross revenue ($24k for the first 3 months of 2012), net losses and insider ties to other stock promotions.
Verdict: STRONG SHORT BIAS
Disclaimer: I am short 3,000 shares of JMGE at an average price of 2.98.
