Depending on one's timing, Monday's after-hours trading in J.C. Penney Co could have generated a windfall, or served as a costly lesson in troubled stocks.
The struggling retailer's shares soared - at one point gaining nearly 13 percent - shortly after it was reported that Ron Johnson's controversial tenure as chief executive had come to an end.
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The rally was short-lived. After the company said it was bringing back Johnson's predecessor, Myron Ullman, shares slumped, falling more than 20 percent to $14.10 in the span of an hour, as some investors called for the board of directors to resign.
The knee-jerk rally, which saw the share price touch $17.88, turned into an opportunity for big investors to unload the stock. Time-and-sales figures shows dozens of trades of at least 10,000 shares after Johnson's resignation was announced, and after the stock hit its high for the post-market session.
"There's a benefit to liquidating a position if you can," said Dennis Dick, a proprietary trader with Bright Trading in Las Vegas. "People dumped 100,000 shares at a time as it rose. It's rare to see trades of 100,000 and I saw it multiple times last night. They were making a bet that the stock wouldn't hold onto those gains and they were right."
Dick, who said he "played it a little," said big sales came in reaction to the rally, and then after the Ullman appointment was announced. "They used it as a chance to liquidate. When the big guys are doing that, you take note," he said.
About 6.7 million shares traded in heavy activity between 5 p.m. and 6 p.m. EDT (2100-2200 GMT) on Monday - about half the daily average of 14.8 million shares traded during regular trading over the last 50 days. By contrast, Bank of America Corp, normally one of the stock market's most active issues, saw less than 400,000 shares change hands in that hour.
The dramatic reversal in JCP illustrates the peril of jumping into a volatile stock at a time when fewer investors are trading and the outcome is uncertain.
"Things move faster given the lack of liquidity after hours, and the stock jumped so fast with everyone shooting first and asking questions later," said Michael Matousek, senior trader at U.S. Global Investors Inc in San Antonio, which has a position in J.C. Penney.
"It just shows that you can't really digest news or understand the implications of it within seconds of it breaking."
Much of the initial reaction was likely driven by high-frequency traders, who make plays on market momentum rather than company fundamentals. Dick described such players as having "a time frame of milliseconds...
"The stock pretty much covered its entire range from the past month, probably because of algo trading, probably because of how little liquidity there was," Dick said, referring to algorithmic trading which uses pre-programmed instructions to carry out orders.
"Then, as more information got digested, it saw key reversals."
Some investors cautioned against trading in such circumstances, especially in a name that has seen the kind of moves Penney has over the past few years. Johnson's time at the helm was marked by a drop in sales and a 60 percent decline in share price over the past two years.
The news that Johnson would be replaced by Ullman, Penney's previous chief executive, contributed to a sharp reversal. Shares fell as much as 11 percent to hit a low of $14.10 shortly after 6 p.m.
"There may be trading opportunities, but there are other stocks where you don't have to worry about shoes continuing to drop," said Jeff Meyerson, head of trading for Sunrise Securities in New York.
"If you have to play it, wait a few days and see where the dust settles. Controversy is hard to trade. Let someone else fight the battle."
In trading Tuesday, the stock continued to struggle. Shares were down another 10.5 percent to $14.21 from Monday's close of $15.87 on the heaviest day ever for volume.
(Reporting by Ryan Vlastelica; Editing by David Gaffen and Leslie Gevirtz)