Stock in Swedish car maker
Volvo Cars
plunged Friday in overseas trading. Nothing fundamental, such as weak car sales or rising costs, were knocking the shares down.
The reason for the drop was, essentially, technical. That could spell opportunity for traders.
Volvo (ticker: VOLCAR.Sweden) dropped about 11% after entities connected with its parent company Geely sold shares.
Geely controls the auto maker, but Volvo Car stock is still listed. Before the sale, Geely held more than 80% of the shares outstanding, according to FactSet. Now it holds a little less than 80%.
Through late European trading Friday, almost 18 million Volvo Car shares traded. That is about seven times the average daily volume. Anytime there is more supply of something for sale the price has to adjust to clear the market.
The reason for the sale was, ostensibly, to help Volvo Car shareholders out by increasing the number of shares available for trading. While there is near-term volatility, more shares available for trading makes it easier for larger investors to take a position in a stock—it increases the potential pool of buyers.
There is no plan to divest more of Geely’s stake. “As the majority shareholder, we remain steadfast in our commitment to continue our support of
Volvo Cars
on its transformation towards becoming a fully electric car maker, and we look forward to continuing this ongoing global success story,” said Geely in a news release.
What’s more, Geely said the process is done. The good news for Volvo Car stockholders is once large blocks of stock have been sold things tend to recover. Just look at
Tesla
(TSLA) stock.
Tesla
CEO Elon Musk sold billions in Tesla shares throughout 2022 to help fund his purchase of Twitter. From the time he tweeted “I made an offer” on April 14, until he said he was done selling stock in late December, Tesla shares fell more than 60%.
It wasn’t all Musk’s stock sales that sent shares lower. The
Nasdaq Composite
fell more than 20% over the same span. Still, large blocks of stock for sale move stock prices. What’s more, investors don’t want to add to positions if they know large stock sales are coming. It’s like buying before a near-guaranteed dip.
Tesla stock rose 16% the month following Musk’s declaration he was done selling. Two months later the stock was almost 65% higher.
If Geely is done selling Volvo shares, they should recover. The question is can investors know what Geely will do?
Write to Al Root at allen.root@dowjones.com
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