Thursday, January 6, 2011

The Not-So Invisible Hand

from Seeking Alpha:

>>We all know that we live in a world where hedge funds pay a lot of money for research and then even more in sales and trading commissions to large banks. It is not uncommon for hedge funds to exercise their influence over analysts and persuade them to present their thesis in a new piece of coverage. However, there was no smoking gun cited by UBS to account for the massive downward revisions of DLR and DFT. Hence, in my opinion, hedge fund ‘thesis pushing’ is the most credible explanation for the awkward call. It was quite unfortunate timing for the UBS analyst that the Goldman note preceded his call by 24 hours as it simply further exposed his hand. The fact that this happened on quad option witching Friday, where the most damage could be inflicted, only adds credibility to the macabre conspiracy theory. Well, if you buy the conspiracy theory that UBS may have been convinced by certain short funds to revise their ratings on DLR and DFT, and then UBS accidentally released the report on quad witching Friday.

The only conclusion can be that the shorts, lacking anything concrete, are desperate and throwing the kitchen sink at these stocks in an attempt to cover their positions before the earnings calls. Christmas trading was very light, and in the case of DFT, this leaves the shorts a little over one month to cover 13M shares, not a great prospect on a stock with a volume between 650k-800k per day. So if you’d like to start the New Year with a squeeze, this pair looks as good as any.

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