There's a lot of things working against the notion that most of the shorts have covered:
1. 3.8 million shares is a lot to cover in one day.
2. When the stock broke support and went under 30, that very likely attracted new shorts to take the place of some who may have covered.
3. Much of the buying came from daytraders (I know many traders at Tradescape who were trading PLMD on Friday) who jump into stocks like PLMD that are swinging/trending wildly. Don't underestimate the number of shares traded by daytraders in these situations; we have ready cash, after all, and we typically get in and out many times before we're through. (Tradescape recently accounted for 7% of the Nasdaq daily volume; as per February 19th FORTUNE article by Nelson Schwartz.)
IMO the halt really, really, hurt the short cause. Not that most of them didn't or won't still make a sizable profit; after all the position doubled in February at prices mostly between 35 and 40. Rather, Friday was a windfall, a chance to take a huge profit without enduring any pain. I believe the crash caused a lot of computer-generated selling from institutions, and that most of the shorts could have covered (if they wanted to) during the last half hour of trading that never came. I doubt even with massive covering that the price on Friday would've gotten higher than 22 and it might've closed under 20.
I mean, the selling was so fast just before the halt. It was a total panic. My sense of trader psychology tells me that many of the shorts are pissed at not being able to cover during those last thirty minutes. You would feel the same way if you bought something that suddenly shot up ten points and then the market halted before you could exit. At that point the control of the trade has been taken away from you, and now you'd have to HOPE for some news to go your way, or for the market to do you a favor.
On the other hand if you're long, and you're expecting the company to defend itself in the premarket CC, are you going to want to sell at the open after the stock has already been cut in half the previous trading day, and is in fact 55% below its 200 EMA? The CC would have to be an out-and-out disaster for people to want to sell some more at 17. Given the press release PLMD did issue Friday afternoon, do you think it's likely that the CC is going to a disaster, or a well-reasoned defense?
It doesn't matter at all what ultimately comes of the allegation of an FBI probe, or anything else to do with the company's long-term prospects. None of that is going to figured out on Monday. On Monday, the stock is going to trade based on trader perceptions. If the stock was halted when the price was 35 the situation would be completely different. Traders would be able to understand the downside, and the would think, my God, 3.8 shares short must know something. Well, they did know something! The price is now 17. The risk-reward ratio IMO now favors the bulls (like I said unless the CC is a disaster).
Bulls and bears make money, pigs go broke.
Respectfully, I have to disagree with you: there's going to be a lot of short covering and also a lot of speculative buying on Monday. Good luck to you. |
