Explain this drop please

I'm watching a stock, JAV trading today. I's not heavily traded 147,000 shares and the tick volume is 319. Lots of 100 and 200 shares have been the norm today, moving the stock a penny this way or that, with the stock going up 12 cents on the day. Now, as soon as the market closes, someone sells 1300 shares and the stock drops 43 cents in one minute! I don't understand this huge drop on such small volume. Can anyone explain this process to me? Thanks bigjohnY

It is precisely because it is so thinly traded that the price can drop (or go up) by such a large amount in almost no time. The same thing frequently happens on thinly traded stocks and even on those that are not thinly traded when outside of trading hours. Do you have level II ? If you did you may well have seen that there was no support below just a few cents in value of the price just before the drop and any support there was may well have been taken out by the 1300 order going through. Also bear in mind that you can only trade on ECNs when the market is closed so you have no support from normal MM activity.

This is not unusual in my view


Paul

but Paul, how can that be allowed.... A small amount of shares moving a stock so much

There is no legal requirement to maintain a stock at any given price. Like I said this is all quite normal for thinly traded shares. I suggest you get a Level II feed and see what support there is. Often you can find that there is support of only a few hundred shares at a few cents near the current price and below this nothing for 40 or more cents. This is much less likely in shares with large volume ie over 1 million a day.


Paul

bigjohnY said:

but Paul, how can that be allowed.... A small amount of shares moving a stock so much

Click to expand...

Some more thoughts:-

Are you sure about that 43c drop? Looking at the chart there nothing more than 20c.
Or is the spread very wide ?

There are such things as Delayed trades, Hidden trades and Iceberg trades which means that the trades which are visible at any time are not fully representative of the whole picture.
In fact it is only the bigger trades which go through in disguised fashion and which are likely to cause big moves.

You need to check the Exchange website to see which type of trades are allowed.

Glenn

At 3;59P.M. the stock was at 5.46....At 4;01P.M. two minutes later... it was 5.03. Who decided that this 1300 share (sale, i assume) would move this stock 43 cents, and why/how did they come up with this particular value, 43cents. Why not 63 cents less? or 83?

BigJohn – which JAV are you looking at? If it’s Javelin Pharma then it didn’t perform as you state according to my data. You checked your feed?

In any event and as Glenn says, trades can be transacted at any price two participants choose. Given the size relative to the 'normal' transactions and given the roundness of it, I suspect it's a trade with a purpose. Off-market, in-house, upstairs trade, whatever you want to call it.

And as Trader333 alluded to, low liquidity in any share is always potentially going to throw up horrible spreads and illogical price movement even in unstressed markets. Too few players means those that do play big time have even more ability to throw the price around for their own ends.

and why/how did they come up with this particular value, 43cents. Why not 63 cents less? or 83?

Click to expand...

I have explained this but you seem intent on not believing it. It is all down to the MM support levels and the fact that MM are not active outside trading hours only ECNs are and as such if the highest bid on an ECN was 5.43 then the next level down is 5.03 and someone trades the stock then that is the price it will trade at. It is not decided by anyone and is very common with thinly traded stocks. You can even get a 20c variation on Microsoft out of hours which is stock with huge volume. I remember a few years back that this variation in the Bid and Ask was used to make profits before market open and Microsoft was one of those that was used to do it. This was in the days when you could hide orders quite readily by 1/10th of a cent. Microsoft may have had a bid of say $27 and an Ask of $27.20 and what you would do was place a hidden Bid order at $27.001 and a hidden Ask order at $27.199 then wait for the orders to be traded. What you would see is two orders go through with one at $27.001 and one at $27.199 and it was a quick way to make 20c and was done by many.

If you had a level II screen you would easily have seen where the support levels were for this stock and why it dropped by so much so quickly.


Paul

Glenn said:

Some more thoughts:-

Are you sure about that 43c drop? Looking at the chart there nothing more than 20c.
Or is the spread very wide ?

There are such things as Delayed trades, Hidden trades and Iceberg trades which means that the trades which are visible at any time are not fully representative of the whole picture.
In fact it is only the bigger trades which go through in disguised fashion and which are likely to cause big moves.

You need to check the Exchange website to see which type of trades are allowed.

Glenn

Click to expand...

One other thing - You say the price dropped as soon as the market closed.
At this time every day a Market Maker may elect to widen the spread considerably in order to protect his book against overnight extremes.
So was it the mid-price which moved, or just the size of the spread ?
Glenn

Thank you everyone 333, I'm green, not disbelieving. I have to learn what drives a stocks price, Then I'll have one more piece of this puzzle I've thrown myself into. By the way, I'm using Quote.com Live Charts, a paid for service, and I don't know where they got their charts from, I only can go on what I see on my screen.

Hoo Boy Glenn, I Don't even understand your question! NEON green,that's me