Ciena up again today. Hard to count the number of times in the past 6 weeks it was the best performer of the ndx.
Maybe the scenario below is also partly at work right now in the case of beaten up names. Could it also mean a strong December as well on these types? I expect it but we shall see. Does anyone else have an opinion on this?
A few paragraphs below from the following link.
thestreet.com
Junk in the Trunk
The broad market's setback came amid a lot of discussion about how so-called junk names are due for a fall after some huge percentage rallies since Oct. 9. Some of the more commonly cited issues, including Lucent (LU:NYSE - news - commentary - research - analysis), did retreat Tuesday, but not by much. Meanwhile, at least 10 Nasdaq-traded names trading under $5 a share were up by more than 20%.
To many observers, this kind of performance in presumably low-quality names is evidence of a return of speculative excess. Or, at least, of money managers' mindless desire for beta or highly volatile stocks.
Brad Ruderman, managing partner at RCM Partners, a Los Angeles-based hedge fund with more than $100 million in assets, offered another explanation.
Arbitragers who've been short various tech names and simultaneously long their convertible securities have been forced to cover those shorts because the stocks have rallied much faster than the converts.
Ruderman suggested this phenomenon explains, partially at least, some of the recent big gains in names such as Lucent and why, for example, Cymer (CYMI:Nasdaq - news - commentary - research - analysis) has outperformed the SOX, up 131% vs. 75%, since the Oct. 9 lows heading into Tuesday's session.
"The arb community, generally speaking, has been able to short stocks effectively to zero and were hedged by being long bonds -- it was a riskless trade for two years," Ruderman said. "They wanted to cover on Jan. 2 to avoid paying capital gains taxes, but it's not that easy: The market went up."
As the market rallied, these players were compelled to cover, which caused the stocks to rise even further, causing a self-fulfilling prophecy. "These guys had a decent year and now they got a problem," he said. "This is not just Joe Schmoe speculating. There's a lot of power to this." |
