I've heard that some institutions (mutual funds, etc.) "aren't allowed" to continue holding stocks that are trading under $5. I've heard this talked about quite a bit, and was wondering if there was any truth to it. I know there are different types of funds, but let's say we have a big cap fund that was holding SUNW all the way down; if it hits $5, would they start to look at dumping it? I've just noticed lately that once a stock hits $5, the selling seems to really start accelerating, even more so than before, and was wondering if there was any truth at all buried somewhere at this. Thanks.
Any Truth to this? (re: $5 stocks)
- Thread starter Sysdomatic1
- Start date
On the whole it depends on the constitution of the fund. It is true that some institutions (pension funds for example) have restrictions put on them and this may include things like concentration limits, diversification guidelines and even get specific like a dollar limit, like $5. Usually this is to restrict the assets from being invested in penny stocks which do not receive the usual scrutiny from analysts (therefore less information available) and are more volatile and open to manipulation.
For example Bill O'Neill, [IBD + info king to pension plans ] mentioned avoiding them.
Noticed most in that range don't trend or trade as smoothly; reversals can be fierce. Noticed my loss % on them greater.
Figure the fastest of the fast traders can profit here;[under $5 ]
WHAT happens if you have tek trouble-huge % against you???????????????????????
[too risky for me]
-----------------------------------
''Learning from the mistakes of others is by far the least expensive and least painful''-Ed Dobson -Traders Press
Noticed most in that range don't trend or trade as smoothly; reversals can be fierce. Noticed my loss % on them greater.
Figure the fastest of the fast traders can profit here;[under $5 ]
WHAT happens if you have tek trouble-huge % against you???????????????????????
[too risky for me]-----------------------------------
''Learning from the mistakes of others is by far the least expensive and least painful''-Ed Dobson -Traders Press
I guess I'm just looking at a stock like AMD. It seems like anytime a company announces bad news that takes the share price under $5, the selling pressure seems to be multiplied. Will see how this one acts tomorrow, but if the trend continues, it'll probably close lower than where it gaps down to, as institutions and others bail.