On several of the message boards I’m following, I’ve heard numerous complaints about stock manipulation, particularly naked shorting of stocks by hedge funds and their ilk.
Not only is this practice illegal, it tends to be done mostly by the big guys leaving us smaller retail investors holding the bags. The SEC discusses it here. The NASDAQ has details about it at nasdaqtrader.com. A public awareness site with lots of information can be found at thesanitycheck.com.
To make the SHO list, a stock has to have at least 0.5% of sales flagged as Failed To Deliver (FTD) for five consecutive days. It stays on the list until the number drops below the threshhold.
I did a lookup on the SHO List for a few stocks I’m following. Since it takes three days before the shares are declared FTD (Failure To Deliver) and five consecutive days to get on the list, I backdated the initial date in each case.
For Smith Micro (SMSI), I discovered that it has been on the list since 2005 (when they started reporting I guess) three times.
Here are the details:
2005Mar31 Open: 5.36
2005May04 Close: 4.21
Change in stock price: -21.5%
This is one of the shortest times on the SHO for all stocks I’m watching and it roughly coincided with a positive earnings report. The stock didn’t fully recover until August 4 2005.
2005Nov09 Open: 7.17
2005Dec16 Close: 6.10
Change in stock price: -15%
Stock price finally recovered 3 weeks later on Jan 6 and ran up to 12.87 before it dipped again. That rally continued through two good earnings reports and didn’t run out of steam until it hit the 52 week high of 16.59 on July 3.
2006Jul03 Open: 16.26
2006Jul24 Close: 13.97
Change in stock price: -13%
No idea if we’re actually done with the naked shorting or this is just a breather. Latest close is 14% off the Jul 3 close.
For Mittal Steel Company NV (MT), I came up with the following stats.
2005Feb16 Open 38.10
2005May16 Close 24.72
35% Loss. It finally recovered on March 28, 2006.
2006May31 Open 30.81
latest close 33.66
Gain so far: 9%. Looking at the technical chart, it appears to me we might have had a rally in the making that got killed by all the naked shorting.
The biggest surprise was True Religion (TRLG). I discovered that TRLG was the only stock out of all that I researched that went up significantly while being attacked using naked shorting.
Here is what I found:
2005Jan24 Opened 8.20
2005Feb04 Closed 9.15
Gain: 11.6%
Jan 26 is when TRLG filed their earnings report. The attack was brief and clearly ineffective considering a 10 day runup of almost $1.
2005Jul18 Opened 16.16
present Closed 18.07
Gain: 11.8%
Although TRLG dipped pretty hard in the last quarter of 2005, it recovered dramatically and posted a nice gain for the year. This attack is now a year old which makes me wonder if a lot of those FTDs are sitting out there from the beginning and the manipulators have moved on to riper pastures. If so, they must have collected a LOT of money on shares they never delivered.