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Cynk, penny-stock ‘star,’ continues tumble

Missed out on the roller-coaster stock-price ride of Cynk Technology?

Don’t worry, says Timothy Sykes, a penny-stock trader and educator, there’ll be plenty of opportunity.

Sykes understands America’s fascination with Cynk — the Belize-based company with a stock that went from 6 cents a share to $21.45, got halted by the Securities and Exchange Commission as it slid to $13.60, then crashed to $2.10 on Friday, its first trading session after a 10-day suspension.

On Monday, the roller coaster continued with Cynk shares experiencing a wild ride — whipsawing between $1 and $2 a share. At 10:25 a.m. Monday, shares were trading at $1.75, down 16.7 percent.

The fact that the market could put a $6 billion value, even briefly, on a one-man, revenue-free shell of an entity captivated Wall Street and many Main Street investors.

“Analysts spend their whole lives learning how to value a company. So naturally they’re offended when a stock violates all the rules,” says Sykes, who in two years turned his bar mitzvah money into $1.65 million by dabbling in penny stocks.

But Sykes insists Cynk’s wild ride, which he attributes to a short squeeze, is “a normal market function.”

It could have been a single market maker, he explains, who “got caught up in his ego and decided to short what he thought was a ‘scam’ stock by as few as 20,000 shares.”

Market makers aren’t legally required to borrow the stock they short. The wild swings are then amplified when the stock moves up and the shorts — who are betting the stock will fall — have to cover their positions.

Fueling Cynk’s wild rise, insiders were restricted from selling their shares into the open market and into the hands of the shorts.

As early Cynk shorts scrambled to cover their “naked” positions, it attracted other short sellers. They also smelled a “scam” but were equally ignorant of the stock’s illiquidity.

Panic set in on their settlement days — three days after these traders bet against Cynk — which required them to have “borrowed shares” against their shorts or face SEC violations.

“A stock can be irrational a lot longer than you can hold a short position,” Sykes warns.
Indeed, in this case, it took the SEC to end the irrationality by halting trading for 10 days. But it may not be over.

With Cynk’s Friday close at $2.10, the company, with no discernible value, nonetheless carried a market cap of $612 million.

Here’s Sykes’ take on why the stock didn’t close lower (but will): “You have shorts closing their positions, which means they’re buying, and this buying puts upward pressure on the stock’s price. This can bring in more short sellers.”

Sykes admits he’s one of those still trying to ride the Cynk roller coaster: “I’m looking for shares to borrow so I can short the stock, but I can’t find any.”