The Case of the Hollow Breakout: CDTI


Breakout on 10/30/14


On 10/30/14, CDTI jumped from 1.68 to a high 3.97, and closed at 3.91. CDTI’s news was that they received 2 patents, which replaced platinum and rare earth metals in catalytic converters in order to provide their ‘proprietary clean emissions exhaust technology’. This is the classic hollow breakout: the company’s valuation skyrocketed even though there was no announcement of any form of positive cash flow into the company. All CDTI did was release a statement revealing patents; they didn’t announce positive earnings, a possible buyout, or even a big contract for their products. The patents they announced made them $0 at that point in time, yet the price climbed 200+% in one day—the perfect opportunity for a short. Had you shorted CDTI at the end of the day on 10/30/14, you could have made up to 25% the next day, and you stood to gain even more the longer you held.

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