Bear Raid

During the credit crisis of 2008, Jim Cramer discusses the bear raid due to the government action to nationalize major banking institutions by investing tax payer money into US banks.  He believes that action will allow banks to start lending again and eliminate the possibility of a great depression.  He also believes that this action will put an end to the short selling frenzy that so many investors were profiting from.

Jim Cramer discusses the bear raid which occurred once the government announced TARP, which was a plan to invest money into troubled banks.  He basically refers to it as a US sovereign fund and believes that it will eliminate the probability of a economic depression.

Bear Raid Definition

A bear raid occurs when a group of traders manipulate a security's price in order to drive down the value of the stock.  The goal of a bear raid is to push the security lower as quickly as possible in order to create fear in the market.  This fear creates panic selling which can be used to make quick gains in short positions. 

Signs of a Bear Raid

A bear raid is a tough operation to pull off.  For starters, the Securities Exchange Commission (SEC) closely monitors suspicious trading activity on the exchanges.  So, in order to execute a successful bear raid it takes more than one powerful trader.  Below are some key things to look for in a bear raid:

1. Enourmous amounts of unsubstantiaed negative news flooding message boards, blogs, and the news media
2. Large short sell orders continusoulsy flooding the market

This one two punch will go on until the price begins to break.  Once the market manipulators realize that the price has been driven to an extreme, they will take a long position in anticipation of the market recovering.  The end result is that the manipulators are able to beneift from both the bear raid down and the subsequent rally back to the true market value of the security.

Bear Raid Chart Example

The most recent bear raid occured in United Airlines (UAUA) in early September.  There was a story released that the company was going bankrupt and this false story was picked up by the mainstream newsmedia.  This caused a massive sell off in the stock which caused a 70% drop in a matter of minutes.  Trading was halted on the stock and the company began to vehimentally deny all of the false claims.  The stock finally began trading again and quickly rallied back to its previous level.  This is a clear example of a bear raid, where traders were able to shor the stock at $10.80 and then re-enter the market with a long position below $4.