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Stock Manipulation, and Insider Trading

 
 
Reply Fri 26 May, 2006 06:34 am
I am in the habit of tracking certain stocks. After doing this for awhile, I have noticed something rather curious. A stock will, all of a sudden, have a huge spike in sales (either bought or sold). Having kept up with the news of the company, one can find no reason for the jump, which appears to come "out of the blue".

Subsequently, a day or two later, or even later in the trading day, some news will come out, which will account for the leap in activity. I believe in coincidences, but this particular type of coincidence boggles my mind. Apparently, the large funds, (who apparently are the majority of the buyers and sellers of huge amounts of stocks) KNOW SOMETHING.

With all the talk about insider trading, why has no one investigated, or even discussed this phenomenon?
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Type: Discussion • Score: 1 • Views: 1,260 • Replies: 13
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Wilso
 
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Reply Fri 26 May, 2006 06:37 am
Those huge funds are also capable of manipulating those stocks by virtue of the volumes they trade.
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Linkat
 
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Reply Fri 26 May, 2006 07:11 am
I agree with Wilso - I work in the mutual fund industry. Depending on the stock (especially small cap stocks) - one large enough purchase could cause the stock to increase. It could simply be a coincidence.

Also it could be that prior to information about a company/stock is printed the rumors have already started. As a result, traders will buy/sell based on this rumor - in some cases the rumor may be true and in other cases the rumor is not. The rumor may not be insider trader as it is known throughout those working in the industry, but not to the basic Joe. There are can be other leading indicators that will cause a trader to realize something is expected either negative or positive in a company - maybe certain bigwigs are leaving the company for example, the trader realizes this is not good for the company and sells on this and two weeks later we hear the company announces some big loses.

Mutual fund companies and traders for large firms have alot more access to information and other analysis that a typical person does not.
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jespah
 
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Reply Fri 26 May, 2006 10:54 am
... and, if there was real-live insider trading, it would a mega-serious offense (treble damages, per Rule 10-B(5)). http://www.law.uc.edu/CCL/34ActRls/reg10B.html

Legitimate mutual funds, brokers and others trading would do best to steer clear of a 10-B(5) violation as I'm sure it would also mean their licenses, seats on exchanges and whatnot, perhaps prison. The SEC takes that very, very seriously.
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Linkat
 
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Reply Fri 26 May, 2006 11:31 am
I agree with jespah. Working in the industry - mutual fund companies take great pains to ensure that there is not even the impression of possible insider trading or any wrong doing - it isn't worth the penalties or their reputation.

Also, a mutual fund typically owns a whole multiple of various securities. So say for instance they do get some sort of insider information, they trade on it - the impact of one security that is maybe at the most 5% (usually a single holding would not be even this large) of their entire portfolio. The impact of this one security would be minimal. It is not really worth the penalty for this small of an impact.
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Phoenix32890
 
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Reply Fri 26 May, 2006 11:58 am
Quote:
Depending on the stock (especially small cap stocks) - one large enough purchase could cause the stock to increase. It could simply be a coincidence.

Also it could be that prior to information about a company/stock is printed the rumors have already started. As a result, traders will buy/sell based on this rumor - in some cases the rumor may be true and in other cases the rumor is not. The rumor may not be insider trader as it is known throughout those working in the industry, but not to the basic Joe.


Linkat- Thanks. Now..................., where does one draw the line between industry scuttlebutt, and insider information? It seems to me, that any way that you slice it, the "insiders" working within the financial industry are privy to lots more information about companies than the average investor.
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Linkat
 
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Reply Fri 26 May, 2006 01:22 pm
The difference resides in is this public information. In the example of some big wigs leaving a company - anyone could know this. It is just working in the industry you would hear about it. You, being an average person would not necessarily hear about it.

Also as in rumors - it is sort of like office rumors - so and so is sleeping with so and so. It isn't really insider information - as everyone knows about it - everyone in the office or in the case of securities - everyone in the security industry is talking about it. We think company A is buying out company B - rumor probably based on company A visiting company B. Rumor started from known facts. That is different than you have a friend at company A and he tells you about a possible takeover and you trade on it.

Mutual fund companies especially now with all the scrutiny they are under, will not trade on a security if there is an inclining of insider trading. Believe me with all that is going on it has increased my workload immensely. Any small dollar amount is questioned and put through a fine tooth comb. I actually believe that shareholders are losing out as a result. With all the scrutiny it is costing more money to hire additional people and technology to ensure there is no funny business. These additional costs are carried down as expenses to the funds and as a result cost the shareholders more money.

It is not really that they have privy to information that you don't - it is just that they know what is likely to happen because of a known public information. The also have access to so much analysis that an average person can't possible afford. Typically they have a team of researcher that specialize in analyzing any little twist or change in the market or in a company.
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Thomas
 
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Reply Fri 26 May, 2006 01:36 pm
Phoenix32890 wrote:
Linkat- Thanks. Now..................., where does one draw the line between industry scuttlebutt, and insider information? It seems to me, that any way that you slice it, the "insiders" working within the financial industry are privy to lots more information about companies than the average investor.

A couple of forensic questions, just out of curiosity: Does your stock picking website monitor insider transactions at the company? In those large movements before the price change, did insider transactions make up a larger or a smaller percentage of the total volume than usual?
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Linkat
 
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Reply Fri 26 May, 2006 01:52 pm
Thomas - I am not on the trading side of things - more on the regulatory so I am unfamilar with the trading software.

The one thing I know and can speak of from my company's aspect is they completely emphasize reputation and the need to be ethical - almost to a fault.
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Thomas
 
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Reply Fri 26 May, 2006 02:10 pm
Oh, I didn't really doubt it, Linkat. My question was more to Phoenix: Even without any specific software, you can look at insider transaction on plain vanilla websites: (Here's Yahoo's page on Motorola's insider transactions for example.) So I wondered what Phoenix might have seen during her monitoring efforts.
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Phoenix32890
 
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Reply Fri 26 May, 2006 03:27 pm
Thomas- Yes, I am familiar with the insider trading page. I really need to look more carefully at that when there is an obvious jump in the daily volume. What I have noticed though is that often a stock swings wildly, at times when there is no obvious news that would account for such a move.

Another thing that I have noticed. Sometimes a bit of news will cause a stock to go down. It hits a low point, and all of a sudden, I observe that there is a huge buy at the low point. Often these buys occur right at the start of trading, or at the very end of the trading day. I can't get over the feeling that some stocks are being manipulated by the "big boys".

I have owned certain stocks over many years. (I am not one to trade a lot. I mostly buy stocks for income.) The kinds of stocks that I have did not move very much in price over time in the past. In the last few years though, there has been a volatility that has little or no relation to the value of a company's stock. I understand some of the forces that are causing this, but I really thing that there are forces at work that have little to do with the solidity of a particular company.
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Wilso
 
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Reply Fri 26 May, 2006 10:13 pm
Phoenix, you should try dealing in a small stock market like Australia. The typical problem we have. If Wall street drops overnight, then our market will drop on that reason alone. If Wall street goes up overnight, again, ours will go up. Now here's the rub. Wall street drops, and the next day is a public holiday in Australia, hence the market can't drop. The next night, Wall street goes up, and when our market opens, it goes up as well. We are totally at the mercy of the bigger markets.
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CalamityJane
 
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Reply Fri 26 May, 2006 10:49 pm
I also noticed that the so called "expert advisors" like Motley Fools etc.
will make or brake a stock within a very short time. Just a couple of
days ago, Motley Fools had a write-up about a certain stock, and promptly
it went up almost 4 points in one day, only to fall back the very next day.

Message boards are another haven of (mis)information where day traders or "shorts" as they call them there, try to manipulate a certain stock,
and shortly before closing time, it drops considerably.

Nonetheless, these message boards (yahoo) are a great information
tool, if one learns to weed out the good from the bad.
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Phoenix32890
 
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Reply Sat 27 May, 2006 07:06 am
CalamityJane- What my husband and I have found, over the years, is not to listen to the brokers and the guys who write the investment letters, etc. They have their own agenda.

I don't want to sound paranoid, but I get the sense that some of these outlets will buy up a stock on the cheap, recommend it to their customers, drive up the price, and then sell it at a tidy profit.

Years ago, we used to take advice from brokers. We got nowhere. It was only when we were willing to do our own "homework" that we have gotten consistently decent results. I daresay, that we are doing better than most of the brokers and the funds.

The only time that we took some good advice was from my son, who does not own one share of stock. He told us about Philip Morris, which was selling at 32.75 at the time. It is now over 72 dollars, and throws off a nice dividend. Go figure!
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