33.5-34 is a heavy resistance range, technically. The 50-, 100-, and 200-day moving averages all converge on this range. So some technical selling makes sense here.
BKS has also traded in a range from 26 to 35 over the past couple of weeks. For folks who got in at 26, they're looking at a 30+ percent gain, which could induce some selling.
Daytraders and extreme short-term swing traders will sell simply because we're not spiking today.
These are all selling pressures that I can understand, to some degree at least. What I don't understand is the institutional selling we're seeing today: there's been some serious volume on the ask, at times throughout the day. The more I see institutional traders work, the less I understand what they're trying to do. It does help me see why most mutual funds underperform the S&P.
Consider these two cases, which I've watched fairly closely.
On March 1, XYLN announced a takeout offer at $37 cash, with the deal expected to close early in April. The institutional arbitrage crowd immediately swooped in and picked up shares at $36. They bought in order to lock in a 2.8 percent gain over 5-6 weeks. Their upside potential is $37. If the deal collapses, the downside risk is probably $10-15. (Remember CIEN.)
Now, I don't have a problem with that. For institutions, a 2.8 percent gain for 5-6 weeks isn't bad; and the risk of the deal collapsing seems limited in this case.
But compare the XYLN arbitrage play to BKS right now. Conservatively, the upside for BKS, for a two- or three-month time frame, is probably $45-50. (I think it's significantly higher). The downside is maybe $23 or so, if the IPO is scuttled and BKS scraps its online strategy.
I can understand investors waiting and buying in closer to the IPO itself. But why don't the arb players do the same for a takeout like XYLN? Why don't they get in slowly and gradually lift the shares to the takeout price, rather than spiking to the takeout price all at once?
The inconsistent behavior is interesting; it seems strange to me.
Sorry to ramble on. This is just a phenomenon that I find to be very interesting. It's hard to figure out what institutional "rationality" is when there are such wild inconsistencies in their behavior. |
