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Expert Financial Analysis and Reporting

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 , + Categorized as LinkedIn, Smith On Stocks Blog

4 Comments

  1. After selling off a stock this morning I came home from work having decided to put some more into CYTK. After your warning here I’m going to wait a few days for a better entry. Thanks for the timely update.

  2. I watched the stock most of the as I wanted to close out some put option positions I’d sold. First, I was struck by how consistent the stock price remained all day. It was frozen on $13, occasionally moving to $13.05 before a dip at the end of the day to $12.95. Second, the market maker spread on the options seemed wider than usual. I was able to buy $13 puts that expire this week for $.30. I wasn’t able to trade my May options. The spread on the $12 puts was $.20 – $.90 (if my memory serves).

  3. Larry and all:
    Seven (7) year high today. Wouldn’t it be funny if the latest add to the index, the SP600, and the shenanigans of the manipulators, set up a chart condition of upward momentum that ‘they’ could not reverse so easily.
    This stock has reversed on every bit of good news, only to rise again waiting for the next positive thing to reverse course.
    Pilgrim1

  4. Wesley Becker says:

    Larry and readers. On May 5, 2017, the FDA approved a drug called RADICAVA produced by MT Pharma America (apparently a subsidiary of Mitsubishi Pharma Japan) for the treatment of ALS. The drug achieved statistical significance in slowing the decline of ALSFRS-R scores. Does anyone have any idea how this drug would compete with or be complementary to Tirasemtiv? What are the implications for CYTK? Thanks everybody.
    Wesley Becker

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