Can no news be good news? Sometimes yes and that's what happened to Zynga (ZNGA) yesterday. There was no news on the company whatsoever and the company itself has not released a press release for over a month, but the stock was up 14%.
From my experience, when a stock is up on no news, it means there is something really bullish building into the stock. Short-term momentum players know this and don't miss out on such moves, sometimes jumping all over one another to get into a stock, assuming some people know something they don't. The question is why yesterday?
It's hard to tell what the catalyst was for yesterday's move, but many commentators said the move was ahead of the company's earnings announcement on February 5. I am not so sure. The conference call date has been announced for a while now. Also, most stocks don't move ahead of earnings announcements, unless of course investors are anticipating an earnings surprise. I don't think this is the case with Zynga. The company is still in restructuring mode and we don't have guidance from management for an unexpected rise in earnings.
When investigating for other news, the only relevant piece of information that I found - to explain yesterday's rally - is that Facebook (FB) received an upgrade.
Aaron Kessler, an analysts at Raymond James upgraded Facebook citing expectations for increasing monetization due to mobile, new ad formats, and international markets.
To some extent, if Facebook does well, it also means Zynga will do good. More users on Facebook also mean more people playing Zynga social games etc.
While that might explain Zynga's rally to some extent, I'm not sure I am ready to base Zynga's 14% rally exclusively on Facebook's upgrade. I mean Facebook has been upgraded multiple times recently, Zynga didn't jump on every upgrade.
So when conventional thinking does not explain what happened yesterday, one must look for a non-conventional explanation.
About a month ago, when concluding my thoughts on Zynga (please consider: Zynga: The Reorganization Effort Is In The Right Direction), I ended saying:
On a technical note, the stock is trading up and down between $2.10 and $2.72 lately. It will have to trade above $2.72, probably with good volume, in order for people to get excited. If and when that happens, the stock will flash across the screens of technical and momentum traders. For time being, there is nothing else to report technically.
That's exactly what I think happened yesterday. In other words, program trading systems picked up on the initial rally, but when critical resistance levels were taken out, automatic program buy orders were initiated by a wide spectrum of investors and before you know what happened, the stock closed up 14%.
Having said that, however, please take note that volume was way above average which leads me to believe that the rally - for whatever reason - has legs.
The next technical target is around $3.20 per share, and if the conference call next week yields any good news, I think that the $3.20 level can be taken out with relative ease.
So while no news is sometimes good news, in reality nothing happens by itself. In this case, I think the rally was exclusively computer trade driven.
Unless of course some people know something we don't know and are acting on inside information. Either way, this no-news rally is bullish for Zynga any way you look at it.