It is sad that Pink could so unravel you. The stock price action is easily understood. First, the correlation between the MRVC price and the Russell 2000 is remarkable. Second, there is no liquidity in small stocks, MRVC included. All of the real money is going to big caps. No buyers means decreasing price. Third, shorts got heavily involved just before the convertible issue arose. Such issues are always good short opportunities. Because of first and second above, there was no reason for the shorts to cover; indeed, it was reason to increase short positions. Look at the short holdings. They have increased dramatically. The increased short selling combined with the lack of liquidity and the declining demand for small caps has made it impossible for the stock price to go up.
Who provides the volume? Not SI readers. It is primarily institutions and mutual funds. Can you name a good reason to buy MRVC now. Sure, it is undervalued. But why buy now when it may go lower? The smart buyers will wait until the stock has clearly bottomed. That will also likely require a bottom in the Russell 2000. When will that happen? No one knows. Add to the mix the great uncertainty in world economics and you have the mix for a very poorly performing stock.
In the short run -- maybe another week or two -- the stock should continue to languish. By the time earnings are released the price will return to $25. Why do I make this prediction? First, there will be no revelation of any SEC investigation nor any accounting improprieties. These allegations are a short driven smokescreen that not only play upon the fears of longs but suck in unwitting, unsophisticated investors who go short. Second, we should receive a recommendation by PRU. Third, investors will come to realize the import of the newest member of the board of directors. Fourth, smart Wall Street investors will begin sucking up the undervalued small caps.
One last comment. Why hasn't PRU already made a recommendation? Because they are smart. Why would they recommend a stock that is subject to the down draft in small caps? If the recommendation was made last week or today, it would have no impact because there is no liquidity for MRVC. PRU will await the liquidity. Then they can look like heros by making what in hindsight will be an obvious recommendation.
How do you lose money in the market? Buy high, sell low. The individual investors are getting creamed on this one. Those on Wall Street will make money because they will soon buy and sell high. |
