Lot78 Inc (OTCMKTS:LOTE) Fighting Off The Shorts

The share price of Lot78 Inc (OTCMKTS:LOTE), electric vehicle charging station developer, declined last month on no news. We believe, like the market participants on the iHub forum, that short sellers have been operating in this stock and are responsible for the downward move. The share price spike seen on June 28, 2017 with high volume and no news, which makes more evident that short sellers are in the stock. They seem to be closing positions and creating a technical jump. It is the classical short selling pattern. Have a look.SourceLittle news in June - No bad newsLittle news was put out in June. On June 7, 2017, Practical Research Partners noted that it had initiated a coverage on the stock. Market participants could read the research on this link. The research is informative, and does not provide a bad opinion of the company. Obviously, the fact that Practical Research Partners is going to cover the stock is beneficial for the share price. It may help in the long run, as more investors may be able to get to know the company.In the same communication, we could read that the industry is growing. Market participants need to know that the demand for electric vehicles remains strong. The EIA expects to see a growing number of EVs in the next 20 years.

"The International Energy Association (IEA) expects to see 30 million EVs on the roads by 2025 and 150 million by 2040, up from just 1.3 million as of 2015. The electric car stock reached 1.26 million in 2015, 100 times more than in 2010. China stated that it wants alternative fuel vehicles to account for at least one-fifth of a projected 35 million annual vehicle sales by 2025. India is considering even more optimistic targets with electrifying all vehicles by 2030" Source

Furthermore, on June 6, 2017, LOTE noted that it would be installing its 4th installation of its Juice Bar Electric Vehicle Charging Station at at Kings County Hospital in Brooklyn, NY. This is a great news, which was celebrated by the LOTE CEO David Schmid:

"Hospital parking facilities make great sense for electric vehicle charging installations. Chargers at these locations serve the patient population, same day surgery patients as well as hospital employees and physicians. We believe that this market segment offers growth opportunities for our company." Source

How should this news affect the stock? New installations of juice bar electric vehicle stations should be seen as a sign that the company is growing. Hence, market participants should have reacted by pushing up the share price. This is not what happened when the market got to know the news. In fact, the share price started to decline right after this news was out.Are short sellers closing their position?Yes. According to the information provided by OTC Markets, many short sellers initiated positions in March and April, but many of those positions were closed later in June. In May, 104,286 shares were shorted, but only 84,062 shares remained shorted on June 15, 2017. The profits accumulated by the shorts are quite large as the share price was close to $1.00 in April and went down to less than $0.25 in June.

Source

In addition, have a look at how the short interest increased in March, but decreased later in June:

DateShort Interest% ChangeAvg. Daily Share VolumeDays to CoverSplitNew IssueJun 15, 201784,062-19.391,032,0601.00NoNoMay 31, 2017104,286196.74525,8401.00NoNoMay 15, 201735,144-55.99951,5591.00NoNoApr 28, 201779,84711,306.711,418,7651.00NoNoApr 13, 2017700-92.94222,9961.00NoNoMar 31, 20179,917831.17197,0431.00NoNoMar 15, 20171,0651,705.0812,3701.00NoNoFeb 28, 2017590.004,7721.00NoNoSourceA crazy amount of short sellers does not seem to create a short squeeze . However, if these market participants start closing the positions very fast and, at the same time, the phenomenon can create a similar situation, the share price could jump. Have a look at its definition. It is sometimes very profitable for market participants with long positions.

"A short squeeze is a rapid increase in the price of a stock that occurs when there is a lack of supply and an excess of demand for the stock. Short squeezes result when short sellers cover their positions on a stock, resulting in buying volume that drives the stock price up. This can occur if the price has risen to a point where short sellers must make margin calls, or more loosely if short sellers simply decide to cut their losses and get out. This may happen in an automated manner for example if the short sellers had previously placed stop-loss orders with their brokers to prepare for this possibility. Since covering their positions involves buying shares, the short squeeze causes an ever further rise in the stock's price, which in turn may trigger additional margin calls and short covering." Source

ConclusionLOTE kept sending good messages to the market in May and June. New installations have been planned, equity research firms initiated coverage on the stock and the outlook for the industry remains positive. Conversely, the stock price did not reflect the situation of the company and the share price declined in the last two months. The reasons? We believe that short sellers have been operating in the market and are responsible for the value lost. Additionally, it seems that these market participants have commenced to close their positions and we expect to see a rather large short squeeze over the next few weeks. We cannot really predict when this will happen. Only one thing is sure: the company is in play. Shareholders of LOTE need to remain alert.Be sure to check out our coverage on LOTE. We will be updating our subscribers as soon as we know more. For the latest updates on LOTE, sign up below!Image courtesy of FlickrDisclosure: We have no position in LOTE and have not been compensated for this article.