There's so much money that moves around the market that we, as individuals, simply can't fathom its power or size. It makes me feel small to type that, but there are moves that will simply go without explanation. Ever. Quite often we'll hear about many of them when rumors or news leaks or a quarterly filing is made, but I'm sorry to tell you that you won't always get your answer.
Two names I'm exposed to have been in that boat as of late, and they can't be any more different.
Tuesday, SmileDirectClub (SDC) was a put sale for me while today it was a straight-up stock buy. After being showered with analyst love, the stock fell, fell some more, then after a high open, fell again Wednesday. We're talking 26% from Monday's open with the stock finally making a temporary bottom Wednesday morning some 52% below its IPO price.
Why the fall?
I can rationalize a portion of SDC's dramatic drop based on the debacle around WeWork, other pulled IPOs, and the concern the recent money-losing lot, which came public, hit the market at aggressive valuations. Fair enough, but 50%+ overvaluation appears extreme. And with many insiders locked up, we're wondering who's left to sell?
A first thought turns toward shorts, but we don't have that information/report yet. I would imagine that could have some impact, but not to this degree.
Frustrated flippers could have some impact, but remember we need more sellers than buyers to push price lower to find an equilibrium. One would believe that at least some of the buyers from the IPO would hold the shares or even average down. The way SDC trades, it's as if all the IPO buyers have abandoned ship along with any insider with the ability to sell. Unfortunately, we're not likely to know why, and we may not even find out who for quite some time, if ever.
All we do know is as individual traders we don't have the power to change the direction of the freight train with our buys or sells in an individual stock. Our goal is to try and spot when the freight train has jumped the tracks or changed directions.
A similar action can be seen in Village Farms (VFF) . The cannabis company was one of the few to post strong earnings growth and profits, but it sold down along with the rest of the cannabis sector. The shares are approaching a 50% drop from post-earnings highs.
Again, we can rationalize some of the selloff based on the overall action in the sector, but when you examine a day like today, you scratch your head. The stock is by far one of the worst performers in the group on no news. Someone is sitting on the ask, selling shares every tick they can get for four days in a row, the last two aggressively. Again, there is nothing to predicate the move lower.
I suppose one could argue a technical break this morning of the earlier closing lows in October, but this is another frustrating situation where someone (or something) with a large influence has simply decided to no longer be bullish this name. They could be bearish or they could simply be moving to a cash/neutral position.
This happens with the market as a whole, but it can most easily be seen in individual stocks. No amount of individual screaming or individual stock buying will stop the drop either.
We are talking about financial amounts we can't fathom in this market, so focus on what we can comprehend: don't try to stop the train, try to recognize when it stops.
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