John:
I am very fascinated by YHOO's altitude gain. My conjecture is as follows:
Most Wall Street fund managers start their day with YHOO web-site because it is free and looks quite complete in news and other details.
Suppose that on a fine day Fund X gets excited about YHOO and chooses to join the ride by buying 1 mil shares at $45-50. The Fund Manager trusts the rest of the WS folks [on valuation, no barrier to entry in to this business, etc.] and does not care for the standard due diligence.
While X buys the shares, the price climbs from 45 to 50 and panicking shorters begin to cover. The price rises beyond $50, say to $60, and X is happy as he performs better than the market. As the price rises to $60, new short-sellers get tempted and short at $60. On the next day, Fund X buys some more, say 100,000 shares. The price rises to $65 and the new short-sellers (of yesterday) get nervous and begin to cover, when Fund X sells about .8 mil shares. Fund X has to have a positive net accumulation for the game to work because buying pressure must continue.
The game starts all over again. The large volume simply reflects the (never-ending) cycle in which the same number of shares sold by the short-sellers to Fund X and then used in covering by new short-sellers as Fund X sells.
Obviously this game (cycle) will stop as one or more of the following events occur:
* The price appears so high that an increase of $5 does not scare the marginal short-sellers. For example 5/70 is a lot less than 5/50.
* An important news breaks out telling that YHOO is not worth the price. MSNBC is OK. But, Barron's will be more lethal. Actually, the latest issue of Barron's talks about YHOO's problems. Incidentally, Barron's had a negative article about FPFG a few weeks ago. FPFG rose a little bit on Monday, making someone feel that the Funds ignored the article. But, FPFG was down 33% the following day!
* Look at charts of APM, NSCP, and ZITL. They all crashed around January and had steep rises before crashing. This makes sense because Fund X will like to keep the market hyped up before beginning to sell all of its holdings. Until the end of December, Fund X is performing so well due to YHOO. But, YHOO may sink next year and so selling as soon as possible after January 1 makes sense.
Sankar |
