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Posted on 25 March 2011 | 11,726 views

Bear Raid Stock Trading and Manipulation

A “Bear Raid” is a type of stock market strategy, where a trader (or group of traders) attempts to force down the price of a stock to cover a short position. The name is derived from the common use of ‘bear’ or bearish in the language of Market sentiment to reflect the idea that investors expect downward price movement.

Bear Raids can be done by spreading negative rumors about the target firm, which puts downward pressure on the share price. This may be a form of securities fraud. Alternatively, traders could take on large short positions themselves, with the large volume of selling ideally causing the price to fall, making the strategy self perpetuating.

When Bear Stearns collapsed, some insiders argued it was wrong to blame the firm’s risky bets on mortgaged-backed securities. They had another culprit, malicious traders working together in the upside-down world of short sales — making money by knocking down Bear Stearns stock.

Dendreon Corporation (NASDAQ: DNDN) is a textbook case of a Bear Raid.

Dendreon fell like a rock from over $24 per share to about $8 per share in about 90 seconds and went back up to over $26 per share the next day.

The SEC and NASDAQ immediately declared its intention to void the transactions but in about 4 hours, it reversed its position and allowed those transactions.

Traders waiting for the Urological Society Meeting of a well-publicized DNDN presentation was going on the same day when some natural and electronic triggered cascading stops occurred. It appeared they were “legal” since the transactions were allowed.

Speculators who are selling shares to the market maker through a short sale actually reduces the market’s efficiency, enhancing the prospects for share prices to fall and make the short sale profitable. In addition, the speculator can execute a series of short sales to drive down the share price.

No one openly admits to conducting a “Bear Raid,” since deliberately manipulating stock prices is illegal. But Wall Street has long believed bear raids can and do take place.

The key to stock market manipulation is the connection between share price and the company’s real value.

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  • John said:

    I was holding DNDN stock the last time there was a “bear raid.” I just sat there, sipped my glass of wine, and watched. I knew it was contrived and, in any event, my cost basis in the stock was under $3. Some people, though, probably had their shares stolen from them. Never use stop loss orders!

    If you listen to some of the message board bashers, another DNDN bear raid is planned for some time in April. This time, though, I think I’ll have some buy strategies in place. If the shorts want to play games, I might as well profit from their nonsense. I could use a new BMW.

  • joe nestory said:

    we all know that dndn has nothing but a super future ahead especially

    for the next 6 – 9 months. why do the authorities permit obvious

    fraud and manipulation of this nature?

  • john said:

    What does he talk about?

    when DNDN has been trade at $8?

    I totally lost here.

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