my pleasure to try to help..... emotionalism is certainly a part of life, and that helps to propel the market to it's
extremes.
briefing.com's traders edge comtemplates the idea that some short sellers may cover and look to sell again
on a rally:
Trader's Edge: Long Has Been Wrong
05-Apr-01 08:15 ET
Where have the momentum players gone? Having grown weary of being the dumping ground for VC and insider shares, and no longer afraid of being trampled in a scramble to cover, the fast money has moved to the short side of the market. The shorts are thriving in the current environment of overwhelming fear, no longer worrying about being victims of shenanigans such as stock split announcement doubles or analyst price target pump jobs.
It Only Makes Sense
After several years of taking it on the chin, short sellers are looking extremely smart these days. Their return to the market coincides with the reemergence of the common sense style of investing that we have often referred to. In a rationale market, cheap stocks should be accumulated and disconnected valuations should be shorted. It has been almost three years since these rules have applied; taking the pricking of the equity market bubble to bring them back.
Looking for Opportunities
Only recently has the media begun to highlight the high level of shorting taking place in the market. This is a subject that Briefing.com has made an effort to discuss during relevant periods. Admittedly, we have not spent enough time on the topic. Our main reason for being less active in highlighting opportunities on the short side of the market was a fear of less experienced traders failing to appreciate the risks associated with selling short. Following a number of subscriber requests and after having to move into NYSE stocks for hopes of meager short term returns (usually looking for at least 15% from a Trader's Edge stock), this analyst recently decided to present some opportunities on the short side. Given the environment, it seemed a much safer proposition that anything we could think of to go long.
ONI Corp (ONIS) and Tellabs (TLAB) were recently highlighted as overvalued stocks with considerable downside risk over the short term. Since our February 28 report on the company, shares of ONI Systems (ONIS) have fallen more than 50%... Shares of telecom equipment maker, Tellabs (TLAB), have eased as much as 21% (yesterday's low; down 17% based on yesterday's close).
Bringing Them In
With earnings season finally upon us, we think that shorts will finally begin to reel in positions, driven, at the very least, by a desire to reset positions at higher prices. The advance in equities will be a function of the sharp reductions in earnings estimates that have occurred in the large-cap technology leaders over recent weeks, and the subsequent price implosions in the stocks. It finally feels as if most of the near term earnings risk has been priced into the market. This could create a scenario where stocks begin to experience positive reactions to earnings warnings.
We believe that this is an angle traders should focus on this earnings season. A bevy of technology sector names have experienced share price gains that more than adequately reflect the near term earnings risk. While this does not necessarily mean that they have established lows for the downturn, we think the combination of high short-interest and oversold technicals will set many of these names up for a run in price. |
