Two Examples Why You Should Never Underestimate Takeover Rumors
Posted by timothysykes on Mon 25th of Feb, 2008 09:45:46 AM
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People love shorting strong stocks that are up on takeover rumors. They reason “these companies are blah blah blah” and “their businesses are blah blah blah”. I won’t use any examples because the details are quite inconsequential, it’s the same pattern again and again. No matter how good or bad a company is, how full of BullShip the management is (good!)(for shareholders) or bad they are (meaning they’re idiots or they tell the truth)(first one is common, second, extremely rare, aka never, but if it did happen, it’d be bad for shareholders because the truth is ugly), the industry, the potential, the hot tip your roommate/coworker/mistress tells you about the play, whatever, these rumors may turn out to be true. So, what are short sellers doing—they’re playing the classic Wall Street guessing game. Right or wrong, they give short sellers a bad name. I want no part of it. Let me explain.
Take two such takeover rumor plays, Take Two Interactive (TTWO) and Asyst Technologies (ASYT). Both companies are horrendous—long-term shareholders have suffered greatly—but they have products that are in demand, somewhat, so that gets outsiders thinking, maybe I can in there and do better. The rumors start flying as do the stocks of the rumored takeover candidates:
TTWO has lots of big-time hedge funds involved and when I was last on CNBC nearly one year ago—note to self, mixing sex and finance turns some stuffy people off (suck on it!), I was discussing takeover rumors—yeah, sometimes the process can take foreverrrrrr—while ASYT has just recently become the center of such speculation. With today’s news, they both show what happens when the rumors become reality. TTWO got a $2 billion buyout offer from Electronic Arts (EA) and ASYT put out some “expression of interest” aka takeover PR. Pre-market, TTWO is up nearly 50%, ASYT up 20%. They may fluctuate, especially uber-crap company ASYT (they’re so bad, they’ll probly screw this up somehow too!), but it appears it’s game over for the shorts, their bets proven wrong.
Sure hindsight is easy and the majority of takeover rumors are BullShip, but why risk it? Ever? Yes, you can make the case that successful financial speculation is all about playing the odds, but why risk getting stuck going against these overnight, especially Monday (as I posted why I didn’t short ASYT over the weekend, Monday is the most popular day to announce deals) big moves? Ever?
As I often post, I prefer plays with similar spiking prices/charts, but where the news is already out, the chart patterns are already formed and the only real players are fickle day traders. Plays like these (mostly anyway) (read the damn book if you don’t understand which ones are good and which aren’t, that’s why I wrote it!)
Lately, examples include AKNS, SEED, COIN, IDMI—all of which I’ve covered extensively and profited somewhat—just short into the fluff super spikes. Sounds easy, right? Haha, nothing worth doing is ever easy, but it is EASIER than playing takeover stocks. Not having to play with the big boys, not having to guess what Blue Horseshoe likes, quicker down moves, more downside and less risk of overnight gap ups. Don’t play takeover rumors stocks and email CNBC to get them to allow models back on! Leaarnnnnnnnnnnnnnnnnnnnnn
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TIM Alerts
View All| Date | Stock | Position | Ideal Exit | % Gain |
|---|---|---|---|---|
| Nov 24 | KVHI | Short | $3.70 | 18% |
| Nov 20 | STSX | Short | $3.10 | 11% |
| Nov 18 | PERY | Short | $3.75 | 25% |
| Nov 11 | IIJI | Short | $2.80 | 5% |
| Nov 6 | CVI | Short | $4 | 15% |
| Nov 5 | MECA | Short | $1.95 | 51% |
| Nov 4 | CVI | Short | $4.81 | 4% |
| Nov 3 | NAK | Short | $3.20 | 5% |
| Oct 29 | EVC | Short | $2 | 26% |
| Oct 28 | HSNI | Short | $6.80 | 7% |
| Oct 28 | HSNI | Short | $5.75 | 4% |
November: 9 alerts, 15% avg gain
October: 11 alerts, 14% avg gain
SHZ up $2, anybody buy that over the weekend? DVD students?
Up $3.50….. and going!!! WHERE IS THE NEWS????
short 500 SHZ at 9.47, maybe early, will add up if i have to
I bought 500 at 4.05 earlier, sold 200 on Friday, sold the rest today at 9.25. I’m watching CHNR also.
Great, Scottrade has only 9 shares available!
Thanks for pointing out VIV
Covered my 500 SHZ at $8.90, good entry, bad exit, +$255ish, nice and easy 5% gain…get the hell out of scottrade, u get what u pay for!
Back to 9.50+, good exit after all…..safe exit.
good exit int he grand scheme of things but when it takes out a key level like $9, there’s no reason to cover immediately because the longs are on the run–$8.50-$8.55 would’ve been ideal, but anywhere between $8.60-$8.75 would be decent
What is the deal with SHZ?
The deal is its a clasisc PennyStocking play. Reason no longer matters, now its a momo pattern game
But how about COINZ, it’s still going?
hey Tim are you in COIN?
Ok, you dont like it, just read your posts, sorry.
Tim,
all a matter of style. shorted *ASYT intraday on Thurs and Friday for small profits. Would not hold overnight and definitely not over the weekend. Takeover deals are RARELY announced during market hours…
COIN is looking like a good short, back over 12, up nearly 20% for no reason…
*CRME up on no news, just BS rumors, any thoughts Tim?
correct, i mean don’t short takeover stocks as a gernal rule unless you’re scalping. and i don’t promote scalping so i say just leave em out entirely
and PS COIN is not looking like a short, this stock is still above a multi-week base and has now bounced off suport. stop treating it like a rangebound stock and treat it as it is, a breakout play. also rumors of a big new contract don’t help
is it a good idea to short SHZ overnight???
Another stock for the radar is CWDK. Pretty illiquid right now and it moves in .75 increments, but if you catch it right it can be a nice gain. If it ever gets some volume kaboom.
and COIN is not up for no reason, its squeezing the shorts cuz they thought it’d crack 11.50 resistance…just strengthens the case this is a breakout.
SHZ, no idea if its a short yet, probly not, could have another morning squeeze
CRME just as dangerous to short as a takeover candidate, considering gaming FDA approval is impossible
Tim,
what do you think of GTXI ? It’s up on news for successful trials of their cancer drug….will file for FDA approval in the summer…of course there is no guarantee they’ll get it….
gtxi chart tells me nothing, talk to me if it surges for 2-4 more days
anyone thinking of playing SHZ into the close?
possible short squeeze in the morning tomorrow?
i was thinking the same.. check post 22 for tims response..
so tim, if we see it fall tomorrow at open maybe then it will be a good indication to short some?
-ps getting your book for reading material for my spring break trip :-)
Check out COINW <~~ cheaper- and bounces higher….. it patterns coin..but still love it….