Dendreon: What Happened on April 28th?

All Dendreon (DNDN) longs almost had a heart attack when they saw the stock fall (I should even say CRASH) from the 24-25 level to 7-8 in less than 2 minutes to finally close at 11.86 before the stock was suspended for pending news (I bet the suspension appeared at an earlier time than expected due to this huge fall). The volume during this fall was huge (around 4-5 millions shares).

But then yesterday, the stock opened at 25+ and (at the time of writing) was trading around this level.

So what happened?

Before giving the different scenarios that I see, it would be fair to explain the background on the stock.

Dendreon was expected to annonce major data about their IMPACT study concerning their "revolutionary" product at 2pm ET.

The stock jumped from $2.5 (in early March) to $24 before the data release (most of the gains appeared in the last 15 days). Now before the big jump due to the pre-release on April 15, Dendredon was trading within a range between $5 and $10.

The stock was (and still is) heavy shorted. This accounts to over 20% of the total shares, and if you exclude institutional and insider ownership, you arrive at a huge 50% of floating share.

We can assume that most shorted shares were done so under $20 a share. So with the stock at $24 before the news release, all shorts were losing money.

So Dendreon was clearly a fight between shorts and longs. And for a very rare time lately in this market, the longs were winning the fight.

Now let's get back to the famous 1:25 pm to 1:27 pm trading period. What happened?

I see several scenarios (PURE speculation on my part):

1) A large shareholder or group of shareholders that owns a lot of shares expected major news, and used their positions to pull down the stock (and activate all the stop loss which explains the quick fall) in order to fill their portfolio of stocks at a lower price.

=> I see this possibility as very unlikely because that would have opened for the shorts an opportunity to cover with minimum loss or even, for some, little profit.

2) Shorts that were under water before the trade tried to trigger the stop loss (the same way as the potential big shareholders above would have done) in order to cover their shorts on the stop loss they activated. That would allow them to limit their lost.

=> I do think this scenario is very possible. Only shorts wanted the stock to fall that low and only the shorts see major advantage to having a very low closing price (which would limit the upside after the good news). Imagine the short loss if the stock had to react on the huge data home run of DNDN if the stock was at $25 at the close?

Now here are the questions:

Will the SEC investigate? I hope so, but I don't believe they will just because they did nothing after the Bear Stearns or Lehman collapse, so why would they find something on a stock where longs (those that had no stop loss) still win too?

Why did Nasdaq keep the trade? I think that Nasdaq found out that only small investors (with their stop loss) got hit and big investors that were short limited their loss so they didn't bother to cancel the trade because they didn't see any reason to help the small investor :) (It sounds possible no?)

What's next? Even if shorts have been able to cover some of their positions on this trade, there is still a huge amount of shorts on the stock and ALL OF THEM are underwater because the stock is at an all time high. Therefore, it is a game of patience for the longs because shorts will have to cover sooner or later. A probable short squeeze should occur within hours or days. Just be patient, longs.

And what about the long term? I guess that the long term of Dendreon looks bright with the potential of their new system of treatment around Provenge. It could be a "smaller" Genentech (DNA) story and therefore the upside is huge. It could be a very good long term bet in the biotech sector.

Disclosure: Author holds a long position in Dendreon

Comments

[Brex:]

I was long DNDN and had stop-loss order in which was triggered in the plunge. I filed a complaint with FINRA and suggest that those who were also affected do the same:
apps.finra.org/Investo...

Apr 30 07:28 AM

[SiRi - Hope:]

I never saw something like that before - I was at work, looked at the ticker a few minutes before and a few min after and couldnt believe my eyes. Then when the news came out that things were great - I really had no clue what was going on. Jeze.

Apr 30 08:03 AM

[fpcat1:]

whichever scenario you outlined indicated collusion and manipulation as the possible cause for dndn price failure on apr28/09.

the contention that sec may not act because they did nothing on similar cases in the past and nasdaq not canceling the anomalous trade because only small investors and only those who had 'protective stops' were screwed shatters belief and expectations regarding ethics, morality and integrity of both the stock market and the government. it will validate the saying -
'might is right', and will erode the precept of 'freedom and justice for all'.

to sec and nasdaq - do the right thing!

Apr 30 08:36 AM

[Be Honest:]

I think that this crash was due to the big investors using shorts to limit their losses and had a domino effect.It has me taking a closer look at the system,and whether I should even be a part of the system.

I do believe that there should be fair play for every investor,regardless of the amount they have to invest.

Apr 30 09:28 AM

[User 399302:]

There was a poster on Yahoo that called this almost to the exact time and % of drop hours before it happened. This was a planned event, and those that planned it are laughing at the long investors they hurt, and at the impotent SEC itself. They will never be punished, and they continue to operate with complete impunity to any authority other than greed itself.

Apr 30 10:23 AM

[Brex:]

Can you please provide a link to that post?


On Apr 30 10:23 AM User 399302 wrote:

> There was a poster on Yahoo that called this almost to the exact
> time and % of drop hours before it happened. This was a planned event,
> and those that planned it are laughing at the long investors they
> hurt, and at the impotent SEC itself. They will never be punished,
> and they continue to operate with complete impunity to any authority
> other than greed itself.

Apr 30 01:16 PM

[Teddy Jack:]

I filed a complaint with the SEC and hope they look into the sudden drop in price. It was obviously stock manipulation for the shorts to get out at a profit. I had a stop order in at $20 but if fell so fast that I got less than $16. I held that stock for over a year waiting for this announcement and to get squeezed out at the doorstep is a great injustice. I hope it goes back to $4.

Apr 30 01:54 PM

[Gregory Pepin:]

I do hope that the SEC will have a strong look on this story but i have serious doubt about it. We will probably never know what really happened.


On Apr 30 08:36 AM fpc wrote:

> whichever scenario you outlined indicated collusion and manipulation
> as the possible cause for dndn price failure on apr28/09.
>
> the contention that sec may not act because they did nothing on
> similar cases in the past and nasdaq not canceling the anomalous
> trade because only small investors and only those who had 'protective
> stops' were screwed shatters belief and expectations regarding ethics,
> morality and integrity of both the stock market and the government.
> it will validate the saying -
> 'might is right', and will erode the precept of 'freedom and justice
> for all'.
>
> to sec and nasdaq - do the right thing!

Apr 30 03:58 PM

[Gregory Pepin:]

The big investor could have shorted without pushing down the stock (if it was in a hedging strategy). I really do believe that it is a shorter moves.
Also remember the psychological impact of this fall :
Longs are now less confident about the situation and they are a little worry and don't know what will happen because the huge fall was so sudden and unique that longs doesn't feel safe. This feeling is in favor of the shorts (So far there is 23% shorts level based on yesterday data


On Apr 30 09:28 AM Be Honest wrote:

> I think that this crash was due to the big investors using shorts
> to limit their losses and had a domino effect.It has me taking a
> closer look at the system,and whether I should even be a part of
> the system.
>
> I do believe that there should be fair play for every investor,regardless
> of the amount they have to invest.

Apr 30 04:01 PM

[Gregory Pepin:]

You made the right move. I hope you will get something out of it :)
Keep us inform if you can :)


On Apr 30 07:28 AM Brex wrote:

> I was long DNDN and had stop-loss order in which was triggered in
> the plunge. I filed a complaint with FINRA and suggest that those
> who were also affected do the same:
> apps.finra.org...

Apr 30 04:02 PM

[polar40:]

I like to know how many transections took place graphically, the price and the number of trades for each price differential. Did the price drop steeply with just a few trades and then a huge number at lower price? Who was trading when it first started?

Apr 30 05:19 PM

[Gregory Pepin:]

Well tough to really tell you. Based on what i found :
It dropped from 24 to 21 then 21 to 17 and then big fall to 7 with huge volume then rebound with solid volume too up to 11,86


On Apr 30 05:19 PM polar40 wrote:

> I like to know how many transections took place graphically, the
> price and the number of trades for each price differential. Did the
> price drop steeply with just a few trades and then a huge number
> at lower price? Who was trading when it first started?

May 01 08:16 AM

[Brex:]

Gregory, have there been ANY new developments on this story? It appears that this one has died and the party(ies) responsible have gotten away with another one. Please say that isn't the case.

May 12 10:21 PM