ACRT should change its ticker symbol, the shorts will have to cover:
<<"Outside influences" and their impact on the price of a specific stock, or....if you are so smartDavis, why did the price of ACRT drop so suddenly?
And the answer is.....ACRT was hit by a "Bear Raid"...
Since I am sure that the terms "short selling" and "Bear Raid" are new to some of you, let me try to explain them:
If an investor believes that a stock is overvalued or is likely to decline in price, they can, under certain circumstances, enter into a type of trade called a "short sale". In this type of trade the investor first borrows the shares, normally through his broker, and enters into an agreement to repay an equal number of shares of the same stock at some point in the future. The investor then sells these shares in the market in what is
known as a "short sale", in the belief that they will be able to repurchase an equal number of shares at a lower
price in the future with which to make the repayment. This "repurchase" is called "covering" the short
position. As a result, a "short sale" has the impact of increasing the effective number of shares of the
particular stock in the marketplace.
A "Bear Raid" occurs when an investor or group of investors carries out a large number of such "short sales",
which have the impact of flooding the market with additional stock and, in effect, forcing the price of the
stock downward by creating more "supply" than there is "demand".
Such "Bear Raids" are often accompanied by a wave of "rumors and innuendo" about the stock, the company
and its management, so as to try to scare other investors into selling.
"Bear Raids" were long thought to be a phenomenon whose time had passed. They were
common in the almost unregulated markets of the late 19th century, but had seemingly
become rare in the markets of the last half of the 20th century. To "sell short" is quite
legal and legitimate, but a "bear raid" can easily cross the border into a clear-cut violation
of Section 10 of the Securities Exchange Act of 1934, and specifically of Rule 10b-5.
"Employment of Manipulative and Deceptive Devices."
Although I do not take short positions, I have no personal problems with short selling or short sellers. In fact, they are
engaged in an intellectual exercise which is quite similar to mine; they are looking for overvalued companies and I
am looking for undervalued companies.
And here are the "Footprints" of the "Raiding Bears":
NASDAQ (and the major exchanges) track all "short sales", and report them monthly, usually as of the 15th of the
month. The attached chart, which has been assembled from NASDAQ data, will give you a sense of the timing and
the size of this "Bear Raid".
The "Short Position" column shows the number of ACRT shares (in
thousands) which have been sold short as of the 15th of the month.
The two columns headed "Average Number of Shares Traded in Month"
give you both the reported number of shares traded ("Raw") and an
"Adjusted" share count to take into account the inherent multiple share
counts generated by the NASDAQ system. These multiple share counts
are more completely explained on another page on this web site; click
on the hypertext to go to that page.
The column farthest to the right, "Short Position Coverage", calculates the
number of days of trading volume which would be needed to "cover" the
total "short position".
The story that this chart tells us is that, although the "short position" in ACRT grew dramatically during 1997, it
exploded in January 1998. As this "short position" grew during the October-December period, ACRT's share price
growth leveled off a bit, but then dropped abruptly as even more shares were sold short in January and February.
According to my database, this stock only has about 5.5 million shares in float. Thus, if all of the investors who have
"sold short" and have not yet "covered" their short positions were to attempt to do so in a limited period of time, the
result would create what is known as a "short squeeze". This could happen if Actrade were to somehow "call in" the
shares outstanding, which could possibly require nothing more than changing the name of the company itself, or if
institutions or Actrade itself began to aggressively buy its shares in the open market.
Previously I mentioned that "Bear Raids" are often accompanied by a wave of "rumors and innuendo" about the
stock, the company and its management, so as to try to scare other investors into selling. There has been quite a bit
of negative information presented about the company on various Internet bulletin boards and forums. Much of this
"advertising" has been posted by someone who identifies himself by the "nom de net" of "Mr. Pink". Since there are
several thousand of these posts, I have read very few of them and can't really comment on their quality level.
However, even a casual review indicates that certain of these posts may constitute violations of Rule 10b-5.>>>
Reprinted |
