Where is the selling coming from?
Here is a list of possible reasons why we might be seeing a sell-off at this time, and I will post my views on each:
I've updated some info from my original post with this title that posted late Tuesday night (here in the SV). I split the post up a bit. The first part is in this post, and the next posts include updates on the rest of the post.
Excerpt from the original post:
Reason for sell-off #3:
Fear of floorless selling, and short selling.
The pattern and timing of the selling this year is consistent with this reason. The stock
began to trend down several weeks before the date the variable conversion kicked in.
This was probably due to some longs going to the sidelines. Around the effective date,
we had several days of high activity with a slight jump in prices, that we now know was
caused by Berg's insider buys offseting some significant selling. But the selling over
the last 2-3 weeks is especially revealing. Every morning, about a half hour into the
trading day, a few market makers start pounding the bid with fairly large trades, and
take the stock down if they can. Then the selling lightens up; some days like Thursday
and Monday, an entire hour passes with almost no trades whatsoever. Then in the last
30 minutes of most days, there is a late flurry of selling from the same market makers.
(Interesting that the last two days, there wasn't as large late flurry of selling.)
It is curious that the stock doesn't break down more, with increasing volume, under the
selling pressure, and then oscillate to an equilibrium price. This would be more normal
price action. No, it seems as though there are two opposing groups here… the sellers
are only commiting a certain number of shares per day. And whoever is buying appears
not willing to support at a given price, but allows the stock price to drop slowly as they
pick up shares from the sellers. A look at the price chart shows an orderly decline for
the most part, with fairly predictable volume (August 19th was the exception). The chart
is extraordinary in that the decline is almost straightline and seemingly predictable, and
with fairly steady total volume day after day. This is unusual trading activity, especially
for a microcap, and signals some sort of orchestrated decline.
Observing the trading pattern, it appears as though there are two strong hands out
there, one selling and the other buying. The sellers are hoping to get a total price
breakdown, that's why they use their hit and pause tactics, and the late day selling
flurry. The sellers seem to be in communication. There are times that the selling
completely dries up for an hour or two, then resumes again. It is pretty clear that a
"selling coalition" exists.
The buyers seem to be trying to pick up 50,000 to 100,000 shares per day, and are just
matching the selling pressure just enough to keep the stock price trending down slowly
instead of allowing a free-fall. Its almost as the buyers are trying to strip as many
shares as they can from the sellers. In order to do this, they can't allow a free-fall, and
they can't hold the price steady… they need to keep the game going, enticing more
and more shares from the sellers.
This looks like a battle of wits to me… So who will win in the end? To answer this, we
need to see if we can deduce the answer to this question:
Who is doing the selling?
Update:
The trading on Monday, Tuesday, and Wednesday, followed the previous selling pattern to a large degree. On Tuesday, and Wednesday, the morning seller pounded the bid down to 4 3/16, and 4 1/8, respectively, before the bid recovered to the close. Again, someone picked up some pretty good volume at the low prices, then defended at about 4 5/16, and 4 ¼. They didn't push the price up though. About 15 minutes before the close each day there was a small flurry of selling onto the bid. But as the bid was supported, the trades rebounded to 4 3/8 (real money trades… the bid price was lower) at the close. The flurry of selling near the closes were not nearly as strong as we have seen earlier. Its almost as though both sides were content to let the stock close with a bid price in the 4.25 to 4.3125 range.
But the last two days, the selling pattern has changed.
On Thursday, the trading was extremely light until around 10:30, then when it became apparent the seller wasn't showing up with much, the stock started trending up. There was an attempt to halt the climb by selling as the ask was hit by buyers around 4 3/8, but that didn't work. At the end of the day, there was a flurry of trading, but half or more was at the ask, unlike previous sessions in this month long sell-off, when sellers pounded the bid at the close.
On Friday, a flurry of pre-open jockeying, then a gap open up in the 4 7/8 range, then some selling volume that seemed to be trying to keep a lid on the price… every time the bid climbed to 4 ¾ or 4 13/16, one of the market makers hit the bid. Interestingly, one key market maker who has been there all along selling in this downturn, had widened their bid ask spread and was just sitting around on the sidelines. Before the close, there was a flurry of buying, with almost all the trades at the ask, right to the close. Not only did the buyers pick up about 25,000 shares in the last ten minutes, there was at least four bids to buy totaling over 25,000 shares sitting at the bid price this whole time. This close is a complete reversal of what we have seen before. This time, just one or two sellers seemed to be trying to hold back a host of buyers.
(continued on next post) |
