Geoff Gannon September 30, 2010

Barnes & Noble: Stock Price Moves and Short Sellers – Can a Stock Move Without News?

A reader sent me this email:

In your blog post you mentioned that surprises move stocks…is there a surprise reason that could have caused BKS to move to $18 last week that you might know of?

Most of Barnes & Noble (BKS) is owned by Riggio, Burkle, and Aletheia. Many of the folks who trade Barnes & Noble are short the stock. There’s nothing wrong with that. In the long-run: the stock will reflect the business. That’s true whether or not people are shorting it.

The move you’re talking about was made possible by shorting. If someone decided they didn’t want to stay short through the board election, they might move the price, because the supply of traded stock is small compared to the amount sold short. A scheduled event – like a board election – can make this worse, because shorts may want out at the same time longs decide they’ll stay put.

It’s like a baseball game where everyone decides they’ll leave in the 8th inning to beat the traffic. It doesn’t mean there was news. It doesn’t even mean people made up their mind at that moment. Some shorts may have always planned to get to a more neutral position for the annual meeting. And some longs who normally traded in and out of the stock might’ve figured they’d chance it and stay through the annual meeting.

Volume was higher than some days. But it wasn’t huge for a stock everyone knew had big news coming out.

Talk to Geoff about Barnes & Noble (BKS)