Is Tanzanian Royalty About to Implode?

Good lord, I love a good roller coaster ride. Tanzanian Royalty Exploration TRX dropped as low as 54% in today's trading session. For a long time, no one except the insiders knew why the stock was being hammered. Although the greater markets were not performing extremely well, the rapid downturn appeared to be slightly drastic.

Before noon, Tanzanian Royalty gave a press release, stating that the stock performance was nothing more than a "technical market situation." At the time, this could have meant one of two things. The company may have had absolutely no clue who was laying the smack down on the stock, which seems kind of unlikely. If there was a rogue trader or fund that wanted to hurt Tanzanian Royalty, the chances of moving the stock over 50% seems a bit unlikely.

Tanzanian Royalty's management most likely knew about the reason for which its stock plummeted. In fact, reports started coming out stating that Tanzanian Royalty's CEO, James Sinclair, had a phone interview revealing the facts. In the interview, the CEO stated that an undisclosed investor decided to liquidate his stake in the company. No reasons or details were revealed.

What does this mean for you? The investor clearly has a good reason to let go of his entire holdings in Tanzanian Royalty. Whether he knew something that was going on with management or with the company's operations and supply chain, the investor must have believed that Tanzanian Royalty was a totally inappropriate investment for him. However, the markets seem to have reacted very rashly to the news.

Did Tanzanian Royalty deserve to drop so much? At this point, the stock is down about 35%. Many times, traders overreact to negative news. A prime example is Netflix NFLX. After reporting poor earnings, Netflix would routinely drop about 15%. After about a day or two, the company would rally back at least 5%. Will Tanzanian Royalty face the same thing? Will traders flood back into the stock after realizing that it was simply one investor that liquidated his holdings?

Investors who are looking for a fairly risky trade may consider entering a small position in the stock. It is very conceivable that traders may flood back in, causing an immediate pop of 5-10% in the next day. What could also happen is that more details about the company's situation are revealed. For example, we may learn that several investors are pulling out of their holdings. Moreover, the company may announce information that may reveal why the lone investor pulled out in the first place.

It is a very confusing time for Tanzanian Royalty and its investors. Traders have to be aware of all the news coming out right now. The stock may present an interesting, albeit risky, trade for some people. If they do consider taking a position, they should limit its size. While it may offer a quick, short-term gain, it could also result in a long-term loss.

Tanzanian Royalty Exploration is currently trading at $2.26, down about 66% for the year.