Cytokinetics: Comments on the Upside Move Today (CYTK, Buy, $12.90)
Cytokinetics is up $1.15 or 10% to $12.90 in a poor market environment. The only news is that the Company will be added to the S&P 600 small cap index. There is no fundamental news. I have seen before that when a stock is added to an index that the price jumps up meaningfully as the stock is added to the index. Paradoxically, it often then quickly goes down to the price where it started or below.
I don’t understand this but I have been told by knowledgeable people that the people managing the indices run the stock up and then set up a hedge such as an offsetting naked short so that they are not net exposed. Hedge funds jump on for the ride making a quick trading profit on the upside. They then short the stock to benefit on the predictable downward move. If I am correct, the stock could quickly return to $11.75 where it closed last night.
I may be too cynical, but over and over I see trading like this that creates volatility that benefits a select few who are in on the game. This is all done at lightning speed using high frequency trading and naked shorting. Short term market manipulation is one of major profit centers for hedge funds and market makers. In the long run, fundamentals determine price and I think that CYTK has explosive potential. In the short term computer algorithms set the price for the benefit of an inside group.
Tagged as cytk, Cytokinetics + Categorized as LinkedIn, Smith On Stocks Blog