What’s high-close?

Stock manipulators utilize a high-close method to make minor trades at high prices appear successful in the closing minutes of trading.

Understanding High-Close

A high close happens at the end of a financial market trading session. The closing price is the last deal before the session ends. Traditional line stock charts employ these prices. They also compute moving averages.

Many traders alter closing prices to create the illusion of a stock rise. A high close is familiar with micro-cap companies with little liquidity, as less dollar volume is required to raise the price. Closing prices can also raise stock derivatives that underpin those derivatives. Closing prices also determine mutual fund net asset values.

Most high-closing manipulation occurs at month or quarter ends. Stocks with little liquidity and strong information asymmetry are more prone to manipulation.

Special Considerations

In 2000, University of Western Ontario economist Joel Fried wrote “High Closing,” arguing that a high close had “no material economic consequence” if numerous individuals traded the stock based on fundamentals.

Traders should avoid utilizing closing prices to evaluate micro- and small-cap stock performance, instead relying on candlestick charts and other indications. Since most serious investors observe closing prices, stock manipulators attempt to generate a buzz around a stock to attract investors.

High Close and Stock Manipulation

Stock manipulation is manipulating the price of a security, including the high close. These manipulations constitute illicit trade for personal advantage.

Despite being prohibited, authorities typically miss these maneuvers. The manipulator prefers smaller firms’ stocks since they’re easier to control. Analysts focus more on medium- and large-cap corporations, while penny stocks provide more targets. Market manipulation, price manipulation, or manipulation are all terms for stock manipulation.

The most common manipulation of micro-cap stocks is the pump and dump, which inflates and sells the stock, leaving later followers to pay the price. Another option is the poop and scoop, which is less prevalent than the pump and dump because it is harder to damage the reputation of a well-known corporation than an unknown one.

If exploited, high closings can violate stock manipulation laws.

Example of High Close

Consider business ABC’s $0.30 stock price at the start of the day. The closing price has been $0.32 for ten weeks. Trader XYZ buys the business, anticipating it would reach $1 in a few weeks. XYZ bought many of ABC’s shares in the last minutes of trading. The trader raised ABC’s price to $0.60 due to its poor liquidity.

ABC stock has risen 100%, and micro-cap traders buy it after seeing the price activity. The following day, XYZ sells ABC on the market before repurchasing it. After XYZ replicates the high close for two days, more traders buy ABC, and ABC’s price breaks $1.

Misusing High Close

In 2014, the SEC charged Athena Capital Research with “placing a large number of aggressive, rapid-fire trades in the final two seconds of almost every trading day during a six-month period to manipulate the closing prices of thousands of NASDAQ-listed stocks.”

Athena traded these equities between June and December 2009 to increase liquidity and pricing to benefit its holdings. Gravy, a stock-trading algorithm, helped Athena achieve its aim. Gravy made up almost 70% of the total trading volume for these stocks in the closing seconds of NASDAQ trading from June 2009 to December 2009. It cost Athena $1 million to resolve the accusations.

Conclusion

• High closes include modest deals at high prices in the closing minutes of trading.
• Substantial closes are famous in equities with minimal liquidity and substantial information asymmetry.
• Candlestick charts can help investors spot trade shenanigans.