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On Monday February 19, 2007 at 10:11:39 a.m. Funtastic (FUN) announced they had a ‘takeover approach’. The price surged that day but take a look at what happened on the previous Friday. Examine the ProfitSource daily chart for Friday February 16:
click chart for more detail
Volume was five times the 15 day moving average, a volume spike by any definition. I am not suggesting there was ‘insider knowledge’ released or ‘insider trading’ taking place because the laws are strict in this regard. Hmmm. Information such as a takeover approach has to be released to all shareholders equally through the public domain. Presumably the Monday announcement was just that. But I sort of wondered why there’d be such a volume spike on the previous day? Just curious.
There of course was another volume spike on the Monday but the stock did rise over 5% on the Friday – not bad for a spot of luck. But is that all it could be?
If you take the trouble to look at the most recent chart you will note the Friday spike sort of got lost in Monday’s spike and in fact that even dwarfed the sell down spike in November 2006. And I guess those who sold down in November would be wondering.
I appreciate FUN is probably not a big interest for many of our international readers – in fact probably not many Australian investors (I don’t even own it) as it is not a large cap.
But it is worth noting how volume can play havoc with a stock – especially small caps. And I can tell you from the school of hard knocks: take care with small caps in reporting seasons and when private equity is lurking!
Enjoy the ride
Tom Scollon
Chief Analyst
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