RE: RE: “MONSTER” - Following the RulesPericles, thank you for your post regarding the sale of 10% of your holdings. The penny finally dropped and the final puzzle piece went into my understanding of the manipulation. It is irony at the extreme.
For frequent readers, I do not believe that Pericles sold in anticipation of a stock issue. He is a long term holder of Oncolytics and an experienced investor. The down side risk that he would be playing is in the order of 10-20%. The strength of the current rally over the past few days is at a clip of 10% on a good day. With retail margin levels increasing as we pass through the $5 limit, there will be more retail investor demand pressure on the stock. The correction rally is gaining momentum.
“The market” that controls the price of Oncolytics’ trading value is heavily influenced by institutional traders. They are buying ONC on a regular basis and accumulating positions of 100s of 1000s, if not millions, of shares. Why pay $5-$7 if you can buy at $3? The current correction rally is supported by the market awareness that the current market capital valuation is ridiculously low for a company in a pivotal trial. The market cap has to exceed $500 million and support a share price above $7.00.
Why are institutional investors selling large blocks into the market? In the beginning, there is a strong argument that the selling was to depress the stock price and keep the stock price below $3.00. There may still be a bit of this going on but I am confident that the market generally supports the correction rally.
Still, what is the explanation for the large block sales? The selling is due to the prudent man rule that one stock can not dominate a fund. A rule of “5%” forces the manager to sell even if they want to hold. With an 80% YTD stock appreciation in ONC, you can imagine the manager’s predicament. At the beginning of the year, the market value holding of Oncolytics was close to 5%. It is now sitting around 9%! The fund manager is being forced to sell almost half of its holdings in Oncolytics today at $5 when the expectation is to sell at over $20.
At the beginning of the rally, these shares were sold in to the market in the hope of stalling the rally. As the rally gains strength, managers are getting creative. I suspect that there is an "exception approval process" to allow flexibility in the application of the rule. The other solution is to park the excess in another fund. I suspect that we saw this happen the other day in the US with the 200,000 buy order at the close. A buy of 200,000 should have popped the stock price. The deal was done at market. The other solution is a rapid market correction to $15 so the pain is not as great.