I haven’t seen what I witnessed in premarket trading yesterday in quite some time.  Some BS company issued a “press release” that they were going to make a tender offer for HAR at $49.50 per share.  The name of the company was the Arabian Peninsula Group.  This information was picked up by some Middle Eastern site (www.ameinfo.com) which in turn funneled it along to US based trading sites such as Fly On The Wall.

The stock was trading about eight points higher in the premarket based on this bogus story.  When I sat down at my trading station it was at $33 after closing the previous day at $25.  Initially, I couldn’t find any news as to why it was gapping up such a large amount.  My assumption was that they were being acquired (flashback to 2007 when HAR was supposed to be taken private by GS for $120 per share).  But as soon as I was able to spot the “press release” it was evident that it was an attempt at manipulation.  There was no official press release.  There were quotes from a “Mr. Parker” on the ameinfo.com website.

I have no idea if the bad actors in this case will be prosecuted by the government.  I tend to doubt it though.  I also doubt that the NYSE broke the silly trades that were allowed to occur in the premarket based on the erroneous news reports.  It always seems like the NYSE and NASDAQ halt trading when there is no legitimate reason to do so, halt trading after the manipulation has already caused damage (see DNDN April 29^th) or fail to halt a stock that is clearly being manipulated.  Not sure why the exchanges never seem to get this right.

Trading This Silly Setup

How as a trader can you take advantage of this market manipulation?  First of all, there is no trade to be made in the premarket until a statement is issued by HAR.  As much as you may want to short this thing in the  30’s there was a small risk that it would be acquired or the stock would be halted.  As a trader you never want to be in a stock that has the potential to be halted.

The first trade that can be made is once there is confirmation from the potential “acquiree” that there is no deal.  Best case scenario is that you will hear from HAR while it is still up on the day so you can get short until it fills the overnight gap.  HAR indicated it was not being acquired at 9:24AM.   It was trading at $26 at the time having erased most of the premarket gains already.  But you clearly could have begun a small short position at the time.

The second trade that can be made is the punishment trade.  This is the stock being sold into negative territory once all of the premarket gains have been erased.  The punishment trade was particularly effective in HAR yesterday as it had run up from $20 in the prior days and eventually would erase these gains as well.

Conclusion

As a trader I am constantly scanning the market for favorable risk/reward trades.  Very rarely do I get upset or unnerved by the shenanigans that takes place in the market.  But it would certainly be nice if one day I saw a story in the WSJ about how one of these manipulators actually got nailed by the government.  It would certainly be a breath of fresh air for the 99% of us who would like to believe we are on a level playing field.

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