Well, now we know. WIND's stock weakness over the last few months was not caused by natural causes, but by a short attack - and they almost got Sparky! Instead, by altering his plan to unload his WIND shares this morning, Sparky helped turn the tide and give chase to the scoundrels.
What am I talking about? Remember in past postings when I said the market should be viewed as an intelligent opponent out to get your money, not just a random inconvenience like bad weather. Let me explain what WIND has been suffering, and why, and what I expect will happen over the short near term.
According to various news sources, short sellers attacked many go-go high-tech mutual funds, like Pilgrim's PBHG, and Van Waggoner's fund. They did this by attacking indiscriminately every stock these funds own - once the funds began to falter with the slowdown in small cap stocks. As a consequence, the funds were forced to trim their portfolios whether they wanted to or not, exacerbating a deteriorating situation already made worse by the previous short sales. The fund managers have been going through unmitigated hell, as every stock they owned consistently sank, irrespective of earnings or other news. Since their fund performances tanked relative to the DOW or S&P 500, the money managers were forced to trim deep into their preferred holdings trying to get their assets into anything going up for a change - a boon to MSFT and Gillette. Near panic selling put relentless downward pressure on their preferred portfolio, taking those stocks down farther and farther. Soon, even individual investors tired of seeing their holdings deteriorate capitulated, blaming unknown company problems or bad advise as the cause.
Not only was WIND held by some of these high-performing funds, but just as the short selling was heating up, the PBHG 13G became public information - which must have acted like a red flag to the short sellers. Now you know why Sparky is a hero. He decided not to sell his substantial holding in WIND this morning, and helped turn the table against the shorts.
Ordinarily I don't view a short position in moral terms. Short sellers help make the market efficient by helping to correct excessive valuations. However, a quasi-organized short attack on high-performance mutual funds seems immoral and perilously close to being illegal. I fail to see the difference between this and the investment pools used in the 1920's to manipulate stock prices by artificially bidding up companies, then leaving unsuspecting investors high and dry.
After today, the shorts are in retreat, particularly since the news is out. Hopefully some regular investors shaken out during the process will re-enter this end of the market, rather than seeking safety by following the herd into over-priced stocks like MSFT and Gillette. The herd never ends up in safe places.
If the WIND rally can continue over the next few days, the shorts should capitulate, adding fuel to the rally. This should re-position the stock once more to being responsive to news and discovered opportunities in normal fashion. Since the stricken mutual funds still have an enormous hurdle to overcome in trying to improve their broken performances - by the end of the month - expect them to jump onboard any stock that demonstrates solid price momentum. Therefore the trigger for WIND is not the upcoming earnings report, but rather the upcoming H&Q Technology Show.
Every reader on this thread should think carefully about these aberrant market moves. Do you think you can successfully trade in and out of a market subject to this kind of manipulation? Do you think for one minute that the price this financial market puts on your holdings always reflects the best estimate of the true value of your holdings? Absolutely not. This is why we estimate earnings and calculate intrinsic value, essentially ignoring interim price movements.
Also, think about what Sparky experienced, and how close he came to losing big by selling within a point of WIND's low water mark and major point of resistance. Had he sold, do you think he would buy back in with WIND in the mid-20s, or mid-30s or more? The answer is absolutely not. He would have been so upset at taking a loss, that he would have stopped following WIND, yet cursed forever to be reminded of his costly mistake whenever WIND's sizable gains are reported in the news.
Allen |
