Monday, December 18, 2006

The Cramer Effect

I was watching Jim Cramer's Mad Money show on CNBC today, and on the show he mentioned two stocks that he thought were interesting for bullish plays at some point in the very near future: OMTR and GMKT. He said that both of these stocks had a "share lockup" expiring soon -- OMTR on Dec 26 and GMKT on Dec 20. This means that insiders who got shares before the IPO are not allowed to sell their shares until those dates. So with the extra supply hitting the market, he said to wait until after lockup expiration before buying. For technical traders, I assume that means wait for the pivot low after those dates.

But obviously, many people ignore his suggestion to wait! Check out what happened in after-hours trading for these stocks. People watching Mad Money are jumping in the instant that Cramer mentions the stocks!

OMTR shows a volume spike with big price movement just a few minutes after 6:00pm ET, which is when Cramer first talked about the stock on his show:
But there is a warning here. I checked the time-and-sales sheet, and at 6:02pm there were actually only 3 trades:
  1. Regular market close was 13.79.
  2. 18:02:37 - 100 shares @ 13.78
  3. 18:02:49 - 100 shares @ 14.65
  4. 18:02:49 - 900 shares @ 14.65
  5. After this point, price retreated to the 14.25-14.44 range within a couple minutes, and proceeded to the 14.10-14.20 range within a couple minutes after that.
So the "big move" in this case is a false one. Maybe someone messed up their limit order, or they entered a market order in the rush to try to get in fast.

GMKT is a similar story, with a much bigger price movement. This one occurs at about 6:15 ET, because that's when Cramer started talking about this hot Korean company that he thinks is "the next EBay" (here's another article about it) before everyone realizes that's what it is:
The time-and-sales sheet was a little more interesting here. The first few trades:
  1. Regular market close was 20.48.
  2. 18:11:01 - 500 shares for 20.74
  3. 18:15:18 - 280 shares for 20.90
  4. 18:16:28 - 800 shares for 21.43 (2x400 lots)
  5. 18:16:32 - 100 shares for 22.10
  6. 18:16:33 - 100 shares for 22.10
  7. 18:16:33 - 500 shares for 22.10
  8. 18:16:34 - 400 shares for 22.10
  9. 18:16:35 - 100 shares for 22.39
  10. After this point, price soared to 22.60's, hitting a high of 22.76 (at 18:20:08-10), before ultimately pulling back and resting at 22.30 (at 18:34:57).
So in theory, if you're very quick with order entry, you could possibly get an order in just before the rest of the Cramer crowd arrives and scalp a quick 4-9% or more with an after-hours day trade with a hold somewhere between 30 seconds to 4 minutes, assuming you can get your orders filled. Tricky though!

Probably much easier to play it the way Cramer suggested - waiting for the stock lockup to expire first, then buy off the pivot low. But I wonder how he knows that there's a stock lockup expiring? I couldn't find SEC filings for OMTR or GMKT explaining this.


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