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setting a price warning on mutual fund sell offs.


yadayada
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From the Avid write up on VIC:

(A good friend of mine told me something very interesting which could explain the extraordinarily volatile trading on Monday. Evidently, many mutual funds frequently engage in a type of market manipulation of stocks the day before they are punted from indexes. Say you manage a mutual fund and your benchmark is the NASDAQ Composite. You own 1m shares of Stock ABC and know that today is its final day of listing. You wait until five minutes before the close, then you put in a 200k market-sell order. The stock gets destroyed and your benchmark gets dragged down with it. But you know that the closing mark isn’t “real” and expect it to pop the next day. When it does, your fund gets the performance on your remaining 800k shares, but your benchmark doesn’t participate. I suppose if you can pull this off enough times in a year, it might give you a modest advantage in beating your benchmark, which is the only thing that matters in that world. Diabolical. If you look at the intraday trading in Avid on Monday, it certainly seems consistent with this tactic. Aside from thinking this was interesting as hell, it helps show that the big sell-off was stupid.)

 

 

When I look at past examples of “real” companies going dark on financials or delisted (or both) for reasons other than insolvency, history suggests they are usually great buying opportunities. Volt’s stock fell from $8.50 to $6 on their delisting (juuust about the low) then rose to $11 four months later...today it’s at $10. Globalstar was delisted in December 2012, falling from $.42 to $.30 on the day it got delisted. That day was the low, and today the stock is at $2.30. Comverse’s stock was flat on its delisting day in 2007 despite 43% of the shares outstanding trading. The stock actually climbed for a few months until the mayhem of the financial crisis rolled around. Navistar’s stock did nothing, then it doubled four months later.

 

 

Other situations seem similar to me. Olympus was accused of being a fraud and having the Yakuza running the company in 2011, and everyone panicked that the stock would get delisted, quickly sending the stock from Y2500 to Y500. It had almost tripled two months later, and today it’s at Y3300. Diligent Board Member Services trades in New Zealand (although oddly it’s registered with the SEC and files K’s and Q’s) and went dark last year for almost identical reasons as Avid. In December they warned that their own restatement would take an extra couple months and that delisting from the NZX was possible. The stock gapped down from $4 to $3 on the news, yet today it’s almost at $5.

 

 

It’s good to be buying stuff from guys who Just Need Out.

 

Now HERE is a strategy that seems like relatively easy money. Buying against alot of panicked sellers. If you look at avid, it spiked down to 5$. Currently at over 7$. But it seems in alot of cases you need to be quick to fill up that gap before others do.

 

Is there a way to set a warning when a stock suddenly drops alot anywhere on the market? Is there some kind of app for this?

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