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Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: tang who wrote (6978)	3/18/1999 7:00:00 AM
From: Vendit™	Read Replies (4) \| Respond to of 41369

Some on the S&P re-weighting: A Rebalancing Act By James J. Cramer03/18/99 12:15 AM ET The chaos of these Standard & Poor's rebalancings never ceases to amaze me. What was that horror-show involving America Online (AOL:NYSE) about on Wednesday? Don't you get the feeling that we will look back at this era and think, jeez, why didn't the computer just figure out the optimal price to get the job done? And what was with that funny by-hand way the New York Stock Exchange handled these orders? When America Online finished its merger with Netscape (NSCP:Nasdaq), mutual funds that run by indexing had to reweight their AOL positions. Basically they had to buy more. As billions upon billions of dollars are run by indexing, this rebalancing becomes a really big deal. As we never know when these deals are going to close, at midday I learned that AOL would have a huge imbalance at the close -- to the buyside -- because of S&P funds glomming on to more AOL. But what can you do with that? Can you buy the stock and then hope to flip it at the end of the day? Is it already in the stock? Is it too late? This rebalancing was really screwy. AOL was trading horribly all morning, touching 102, and then the deal closed. Immediately it shot up like a rocket as traders either put two-and-two together about the need to rebalance, or buy a lot more AOL, or they were told by the guys who do this kind of program buying that it would occur. For me? Heck, I was long AOL, so I didn't have to do any buying. But because the rebalancing is such an artificial act, I decided to sell some stock in the last half hour, using a scale, letting some go every half point beginning at 109. Why bother to offer these scales? Because everybody remembers the crazy buy the last time AOL got buffeted by these S&Pers, when it was added to the index. You could have made a ton of money selling AOL at the bell and then buying it back the next day substantially lower when the indexers had done their deeds. I put stock on the book to go as high as 112. It turns out the best prices I got were at 3:30 p.m. when others started buying the stock with the idea of flipping it after the bell. That strategy failed. I sold none at the bell, as it was below my last sale on the scale and I did not want to break my scale. (I didn't want to sell it below where I had already sold it.) I figure on Thursday I can buy back the stock I sold and make a few bucks off the insanity that is this S&P rebalancing, as the unnatural buying power should disappear as swiftly as it showed up Wednesday. thestreet.com