Big market swings blamed on ‘pumping and dumping’ by trading syndicates
29 Apr 2012 11:06 by YASMINE YAHYA
Small, cheap stocks, some costing as little as one or two cents apiece, have been driving up market volumes to astonishing heights in recent weeks, yet nobody seems to know who is trading these “ultra pennies”.
Remisiers and analysts hint that it could be the work of “trading syndicates” – groups of full-time stock market traders who work together to amass large amounts of certain stocks in order to push up their values and then profit by selling them off.
Veteran stock market observers term it “pumping and dumping”.
Such groups have been around probably as long as the stock exchange has been in existence, said Phillip Securities remisier Desmond Leong.
Yet there is little concrete information on who these traders are.
They made their presence felt recently through a number of ultra penny stocks, including JEL Corp, Advance SCT and TT International. The market capitalisations of these three firms – the total value of all their tradable shares – range from $35 million to $127 million.
All were inactive stocks that suddenly became hot overnight for little or no discernible reason.
JEL Corp, for example, had been thinly traded for at least three years. On an average day, fewer than two million of its shares changed hands.
But on March 30, its trading volume shot up to 115 million for no apparent reason. The stock price jumped 57 per cent that day, from 0.7 cent to 1.1 cent.
The stock price and volume continued to rise and gradually began drawing the attention of retail investors.
Never mind that the firm was on the Singapore Exchange watchlist for posting repeated losses.
Investors saw a cheap stock on a seemingly uninterrupted trajectory skywards.
Last Wednesday, JEL shares chalked up a trading volume of one billion and ended the day at a year’s high of 12.2 cents, making it 17 times more expensive than it had been just three weeks before.
And then the syndicate traders began cashing out.
The very next day, JEL stock tumbled 4.4 cents, and on Friday it fell another 1.4 cents. In just two days, the stock had lost almost half its value.
Mr Leong said this perfectly encapsulates the reason why he discourages his clients from joining penny stock rallies, especially if the share in question does not have good business or financial fundamentals.
“These stocks can rise very fast within a short period of time, but once they start falling, they fall just as fast, if not faster.”
After all, these syndicates are waiting to profit on the stocks that they have amassed and the only way they can do that is by selling them at jacked-up prices to willing buyers.
Once they have sold off all their stock in a particular company – and nobody knows when that might be – the buyers will find that overnight, trading volume has vanished and the share price is declining rapidly.
But savvy punters who are able to monitor the stock market throughout the day can and have profited from penny stock rallies.
Mr Charles Chua, a remisier who also trades stocks with his own money, recently made a winning bet on TT International.
He noticed that the stock had been rising steadily since April 9, when its price shot up 38 per cent in one day.
On April 19, he bought TT shares at 11.5 cents apiece. Just three days later, he made a 48 per cent profit by selling them at 17 cents.
“I made a small amount of money,” he said.
This is not the first time that Mr Chua has punted on such stocks, which, in his own words are “highly speculative, highly volatile and with zero fundamentals”.
He uses a program called Meta- Stock, which helps him to filter out what he calls “break-out” stocks.
These are shares that fulfil three criteria: they have been thinly traded for at least a year, their volumes have suddenly increased sharply and their prices have shot up dramatically.
“I monitor them for a while, and if I see that they continue to rise, I will join the party for a few days, or up to two weeks,” he said.
Penny stocks continued to dominate trading on Friday, but analysts say their time is almost up.
NRA Capital executive chairman Kevin Scully noted that in the past, such rallies had been cut short when trading reached such a frenzied level that brokerage houses got spooked.
In 2009, for example, at the height of a penny-stock rally, UOB Kay Hian told its customers that they could no longer use their Internet trading accounts to buy or sell shares in five small chip firms, including Jade Technologies, Transcu Group and Ban Joo.
Trading in all penny stocks died down soon after, Mr Scully recalled.
History could be repeating itself soon. UOB Kay Hian on Thursday listed 13 penny stocks that its customers are no longer allowed to trade online, including Artivision, Digiland and JEL.
OCBC Securities has banned Yoma Strategic and JEL from online trades.
“So trade carefully, but try not to jump in if the shares have already spiked, and if there are no accompanying fundamentals to justify the spike,” Mr Scully said.
yasminey@sph.com.sg
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