The decline in Volvo car stock may be an opportunity. Just ask Tesla investors.
Shares of Swedish automaker Volvo Cars plunged in foreign trading on Friday. Nothing fundamental, like weak car sales or rising costs, caused stocks to fall.
The reason for this decline was essentially technical. This could represent an opportunity for traders.
Volvo (ticker: VOLCAR.Sweden) fell about 11% after entities linked to its parent Geely sold shares.
Geely controls the automaker, but Volvo Car shares are still listed. Before the sale, Geely owned more than 80% of the shares outstanding, according to FactSet. Today, it holds just under 80%.
Until the end of European trading on Friday, almost 18 million Volvo Car shares were traded. This is about seven times the average daily volume. Whenever there is more supply of a product to sell, the price must adjust to balance the market.
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The reason for the sale was apparently to help Volvo Car shareholders by increasing the number of shares available for trading. Even though there is short-term volatility, more shares available for trading make it easier for larger investors to take a position in a stock, increasing the pool of potential buyers.
There are no plans to sell more stakes in Geely. “As a majority shareholder, we remain steadfast in our commitment to continue supporting Volvo Cars in its transformation to become a fully electric car maker, and we look forward to building on this continued global success,” Geely said in a statement Press.
Additionally, Geely said the process was complete. The good news for Volvo Car shareholders is that once large blocks of stock have been sold, things tend to recover. Just look at Tesla (TSLA) stock.
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CEO Elon Musk sold billions of Tesla shares throughout 2022 to help finance his purchase of Twitter. Since the time he tweeted “I made an offer” on April 14, until he said he had finished selling his shares in late December, Tesla shares fell more than 60%.
It wasn’t all of Musk’s stock sales that sent the stock lower. THE
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fell by more than 20% over the same period. Yet large blocks of shares for sale move stock prices. Additionally, investors do not want to increase their positions if they know that major stock sales are coming. It’s like buying before an almost guaranteed drop.
Tesla shares rose 16% the month after Musk said he was done selling. Two months later, the stock was up nearly 65%.
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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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