The Little Engine that Couldn't
Edgar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Imagine how boring our markets would be without volatility. How is volatility created? Earnings releases, fierce competition, accounting discrepancies, SEC filings, insider transactions, new products, FDA approvals, exaggerated claims, rumors, you get the idea. Surely without volatility buyers and sellers would hold on to their shares and liquidity would dry off fairly quick. However, sometimes press releases and exaggerated claims can get out of hand, hence companies with a small float that can yield incredible returns over weeks might leave you without your shirt in a day or two. Having said that, it is imperative to decode every event that causes volatility in order to initiate a long or short position with minimal margin of error.
Consider what happened to Research In Motion (NASDAQ: BBRY) shareholders when they stepped into a bear trap at the end of March. The company's short ratio skyrocketed close to 60 million shares when the press release titled "Company Gone In a Year" surfaced in the International Business Times. While investors thought they were scooping up discounted shares near $14 range that could potentially surge higher due to oversold conditions, shares ended up plummeting even lower to $12.70 in the next couple of days. A robust company that Jim Cramer could stand behind on few years ago, is now in a desperate position from Apple's fierce iPhone competition. It is currently struggling to make new partnerships and raise cash from patent sales to prop up its balance sheet. Whether Microsoft's (NASDAQ: MSFT) patent purchases can lead to the finalization of the $3.5 billion investment, still remains to be the big mystery. If so, the stock could potentially recover some of its losses and begin making higher highs.
Take a look at Broadvision Inc. (NASDAQ: BVSN) that had a massive 40% pullback in the last three months after a string of newsletters by National Inflation Association bombarded subscriber investors, surging the stock 400% since December. This $136 million e-commerce company saw its revenue decline nearly 10% in its last earnings results despite reporting a narrower loss. Majority of its licensing revenue came from Business Agility Suite, Commerce Agility Suite, Quicksilver and Clearvale subscriptions. The company has been burning through cash and veil their losses by showing positive cash flow from their investing activities, which has also been lackluster in the past year. Despite a lackluster revenue stream which has been decreasing in U.S. and Europe, this small cap application firm prides itself in making new channeling partners around the globe. The company saw its net income decrease from a loss of $1.64 million in Q3'11 to $1.81 million in Q4'11.
As CEO Pehong Chen is asking for long term investors for more patience, amateur investors are suffering from a tug-of-war between the National Inflation Association and Tim Sykes. The National Inflation Association considers the stock the greatest thing since sliced bread while Timothy Sykes, a well known millionaire and a hedge fund mogul, is betting on the short side. Once again Broadvision was on the list of top NASDAQ's stocks with the largest short interest percent increases. From January 30th, 2012 to February 15th, 2012 the company's short interest rose by 157,190 shares. Until the millions spent on research and development begin yielding significant results in increased earnings, I would stay clear from the stock.
edgarambart30 is long AAPL through option calls. The Motley Fool owns shares of Apple, and Microsoft. Motley Fool newsletter services recommend Apple, Microsoft, and Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
