How Much Of This Selling Is Manipulation?

I love to do research involving U.S. equities to help provide our members a leg up vs. Wall Street.

One fascinating development throughout 2022 has been the performance of the stock market during various parts of the day and during various phases of the current cyclical bear market. I've committed entire Trading Places LIVE shows to this chicanery on Wall Street.

I've taken it another step further, exploring the trading behavior of Shopify, Inc. (SHOP), a software stock that soared post-pandemic, benefiting from stay-at-home folks looking for new and different opportunities. SHOP closed at 169.06 on November 19, 2021, and closed Friday at 30.11. That's a drop of 139 bucks and more than 80% of its value in a little more than 9 months. Was it warranted? Well, I suppose that depends on how you feel about growth stocks.

I found a couple trends interesting.

Note first that gap ups continued at the end of 2021, even though SHOP began to sell off rather hard (initial distribution during Wall Street's rotation phase OUT of technology stocks). Retail traders could not believe that SHOP was actually downtrending. They'd been programmed to buy SHOP at any cost for nearly two years, but the end of 2021 was when everything began to change.

The massive selling took place during the "Distribution" phase, which I identify as 1/3 through 5/20. There were plenty of gaps lower and lots of selling - until 11am ET. From there, and during the last 5 hours of the trading day, SHOP was FLAT, despite dropping 100 bucks! Some of this afternoon buying was likely due to options manipulation, like during the mid-March period when many technology stocks soared. There were a TON of net in-the-money puts that resulted in market makers manipulating prices higher to eliminate a lot of options value. Since the June 17th low, SHOP has been flat, despite 7 bucks of opening gaps lower (5.45 during recovery phase plus 1.46 during most recent selling phase).

It certainly appears to me that Wall Street is happily buying whatever retail traders want to sell at this point. While another short-term breakdown cannot be ruled out, I'll be shocked if SHOP isn't trading higher into year end and throughout 2023. Waiting for relative strength will be critical.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.