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Technology Stocks : VALENCE TECHNOLOGY (VLNC)
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To: lws who wrote (4633)11/1/1998 4:37:00 PM
From: I. N. Vester  Read Replies (2) of 27311
 
It's very important to understand the dynamics
of how the market is made in VLNC.
Haven't you read the post by J.C. from
a person who worked as a MM?
That post helped me to unravel what
i think is the large part of the
mysteries of how VLNC trades,
especially in periods like the
beginning of this week.

Where do the shares come from when lots
of demand appears? The answer in part is that
the MM's are willing to short the stock
in order to make a market when excess demand
apprears This produces a market gravity whereby
when the buying frenzy subsides, the price will
naturally fall to the point at which the MM's
can cover their short positions

As long as the demand eventually subsides,
the MM's are in a good position to bring
the price back down to where they can cover
at a profit. We've seen this so often
with VLNC. It can be quite disheartening
to see the price drop quite a bit on really
low volume.

Even aside from the fundamental business reasons
for taking a longer term view of an investment
in VLNC, it's important to realize that to
understand the value the market is placing on
the stock in the short term, you can't just
look at the immediate price at any given point
in time. In some sense that's true of any
stock, but i think much more so in an issue
like VLNC, imho.

Note also that a very large part of Tuesday's
was UP volume. I think there may still be
a good size short overhang from the high
volume run-up.

The previous week's nice slow and VERY steady
move up is much more healthy. Until we have
some more definitive proof (i.e. contracts)
of the improving fundamentals, any dramatic
runup even on high volume, might not hold.
But all in all the large jump in demand
and holding above 5 1/2 is quite positive
as far as i'm concerned!
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