The price action yesterday which saw the morning's gain of $1.61 (11.74%) completely wiped out in the afternoon asks the perennial questions with this stock - who is selling shares at this level, and why?
My first suggestion is that the same type of investor was selling all day. Demand was stronger than supply in the morning and the share price went up. Demand was weaker in the afternoon and the move was reversed.
I think we can rule out selling by "weak hands" this late in the day. With around 40 million shares outstanding, and around 90% in the hands of institutional holders and insiders there can't be more than 4 million shares in total in the hands of retail holders.
How many shares realistically can now remain in the hands of clueless investors?
As a general rule an investor will only sell Short if he has reason to believe other investors will subsequently sell those shares back to him at a lower price.
Until yesterday I strongly suspected a repetition of what happened around this time last year - investors selling Short with the guarantee that the Insmed board would support their destruction of shareholder value with a share offer priced at around $10.
While we still can't rule out a similar maneuver, the board would suffer a serious loss of credibility having now guided as follows -
[ The Company expects current cash balances will be sufficient to fund operations into 2015. The Company plans to provide additional cash guidance in the third quarter once additional discussions with the regulatory authorities have taken place. ]
For me the only reasonable explanation for the selling now is that prospective professional buyers (some of whom could be looking to cover Short positions) have taken the position that selling enough shares at this point to meet the demand from impatient buyers will nip any perceived momentum in the bud - and keep gullible retail buyers on the sidelines.
Worth pointing out also that the professional investors looking to anchor the price, and scare off retail investors who would otherwise be competing with them for the shares available from the small number of holders forced to sell on any given day, do have help from day-traders.
There are probably a considerable number of investors holding shares who, whilst being well aware that the share price is far below any reasonable valuation, look to profit from the daily fluctuations in share price rather than just hold and wait.
The professional investors sell enough shares to create downward momentum. Hundreds of these day traders promptly react by selling a small proportion of their shares in the hope of buying back cheaper.
Investors looking to accumulate take advantage.
The professional investors then start buying back their shares whilst day traders are still selling in the belief that the price will drop further.
The day traders who are quickest to realize the downward move is coming to an end buy back their shares.
A small proportion of the day traders are unable to buy back their shares before the selling stops.
Doubtless this trader version of musical chairs plays out with every significant move in the share price.