Part 2: A Possible Scenario for Recent Trading in Valence
I emphasize that this is a possible scenario, and we can't know for certain if this is going on. But there is a significant liklihood that something like this is impacting the stock trading and price. I normally don't subscribe to market manipulation theories, but this is one of the special cases where there is a strong possibility.
OK, lets say a stock manipulator was following Valence at the time of the recent Wednesday conference call. Following the call the stock ran up from 4 7/8 to 5 1/2, on pretty good volume, then sold off back to below 4 7/8, also on very good volume. Lots of possible reasons; profit taking, hesitancy to hold positions until purchase orders were imminent, lack of new money coming into the stock from new players, concern volume production still not underway, etc. Nothing for the manipulator to do yet.
But now a large motivated seller hits the scene. The seller pounds the bid with big blocks on Thursday and Friday. Now the market makers, short term traders, and manipulators, smell blood. They know that many of the Valence shares are held in margin accounts, and they know that if the stock drops below 4, and especially to 3.50, the margin players will get some huge margin calls. They have an incentive to sell stock from their inventory, short the stock or options, and establish a short term trading position, in an attempt to push the margin players to the wall. They would do this from 4 1/2 all the way down to 3.75.
Are there risks? Yes. There could be large players who want to establish a position in the stock at 4, and will take all the shares offered at that price. But the traders should be able to see the big block buys, and close out their positions. And the large players and market makers also can anticipate the forced selling due to margin pressure, and set their support prices low enough (say 3.625 to 3.75), to take advantage of it. They all understand the game.
Another risk is that the company could release some favorable news, and draw a wave of new money and investors into the stock. But since the company just had a conference call, its unlikely that more news would be forthcoming for say the next two weeks.
So all in all, the stage was set for a drop to the 3.50 to 3.75 range, with forced margin selling at the bid when the stock remains below 4 for several days. The overall weakness in the stock market aided the drop.
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