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I have been watching the ticker CDNA for a while now, in 4.5 they released news regarding its newly developed service AlloSure recieving draft LCD which is big news for this kind of company, the news got the stock to go up 79% at that day and since then it went down and down untill 10.7, then without any news whatsoever the stock price bumped more then 90% at most and had 4million shares traded which was like 40 times the avg volume. Is it even legal? whats going on? the thing that i dont get most is how few days later the price goes back to where it was before that uptick. it seems something not legit is going on... any explantion?

  • can you please confirm that you are looking at bloomberg.com/quote/CDNA:US and the spike that you are concerned about is the one on 2017-07-10 ahead of the reported news on 2017-07-11 – MD-Tech Jul 26 '17 at 9:11
  • @MD-Tech yes thats the spike - note that the news came the day after are not informative and not really news its just stating the fact that the stock went up the day before – Ofek Ron Jul 26 '17 at 9:25
  • I was only asking for confirmation (answer on its way) but the content of the news article is helpful in explaining. – MD-Tech Jul 26 '17 at 9:26
  • For another stock, I bought it. I checked later and I was one of two trades in three days. – Joshua Aug 4 '18 at 4:06
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Probably the biggest driver of the increased volumes that day was a change in sentiment towards the healthcare sector as a whole that caused many healthcare companies to experience higher volumes ( https://www.bloomberg.com/press-releases/2017-07-11/asset-acquisitions-accelerate-in-healthcare-sector-boosting-potential-revenue-growth ). Following any spike, not just sentiment related spikes, the market tends to bounce back to about where it had been previously as analysts at the investment banks start to see the stock(s) as being overbought or oversold. This is because the effect of a spike on underlying ratios such as the Sharpe ratio or the PE ratio makes the stock look less attractive to buyers and more attractive to sellers, including short sellers. Note, however, that the price is broadly still a little higher than it was before the spike as a result of this change in sentiment.

Looking at the price trends on Bloomberg (https://www.bloomberg.com/quote/CDNA:US) the price had been steadily falling for the year prior to the spike but was levelling out at just over $1 in the few months immediately prior to the spike. The increased interest in the sector and the stock likely added to a general change in the direction of the price trend and caused traders (as opposed to investors) to believe that there was a change in the price trend. This will have lead to them trading the stock more heavily intraday exacerbating the spike. Note that there traders will include HFT bots as well as human traders.

You question the legality of this volume increase but the simple answer is that we may never know if it was the target of traders manipulating the price or a case of insider trading. What we can see is that (taking "animal spirits" into account) without any evidence of illegality there are plenty of potential reasons why the spike may have occurred. Spikes are common where traders perceive a change in a trend as they rush to cash in on the change before other traders can and then sell out quickly when they realise that the price is fundamentally out of sync with the firm's underlying position.

You yourself say that you have been watching the stock for some time and, by that fact alone, it is likely that others are for the same reasons that you are. Otherwise you wouldn't be looking at it. Where people are looking at a stock expecting it to take off or drop you expect volatility and volatility means spikes!

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