Why Zynga Fell Hard Tuesday: Abusive Short Selling Uncovered

Just after Gambling911.com reported on how online gaming company Zynga had been flying high on the stock market, its share price collapsed by nearly 12 percent with volume three times the norm.

What could have happened to cause this?

Tim Parker of MSN Money noted that the usual reason for such a sharp decline revolves around anticipated big negative news.

Parker writes:

It's no secret that Zynga and Facebook are joined at the hip. As much as Zynga likes to tout how it's made big strides in becoming a standalone company, it isn't there yet.

The Goldman Sachs Tech Conference took place on Tuesday and may have contributed to the sharp rise and fall.

The chart shows a strong uptrend since the beginning of the month --a sign that investors were waiting for a big announcement. Was Tuesday's conference presentation the event that should have revealed something big?

Brent Antwood of Seeking Alpha pointed to something more ominous:

After briefly touching resistance at it's 200 day Moving Average of $3.76, a wave of abusive short selling ensued and didn't see a real pause until Zynga's shares began registering regSHO violations for fails to deliver on shares trades of 10,000 or greater; and after a 11% retracement from it's 200 day Moving Average.

According to data from FINRA's daily regSHO reporting requirements nearly 60 Million additional shares were sold short from February 8th through February 12.

The share price did rise 1.4 percent Wednesday morning. 

Zynga is set to introduce real money poker some time this year.

- Aaron Goldstein, Gambling911.com