The Hidden M.O. Behind Jim Cramer's "Bullish" Call on Nitromed (NTMD)

Last night on "Mad Money," Jim Cramer touted Nitromed (ticker: NTMD), reversing his June 9th bearish call. Why the about face? As he put it: because the stock is "too disliked." At the beginning of the program, Cramer gave a discourse on Nitromed's fundamentals that was nothing more than a veiled attempt to hide his true modus operandi.

You see, the shorts have piled into Nitromed for a variety of fundamental reasons - the explanation of which are better suited for another post. According to Nasdaq, over 10 million shares are sold short, which is out of a total of 30 million shares outstanding and 18 million shares in the public float. Over 50% of the shares that are publicly traded are sold short! With such a high proportion of the float sold short, a positive move in the stock price will create a lot of pain for the shorts that could in turn cause them to cover their positions by buying back the stock, which in turn would cause the stock to rise further, which would cause more investors to cover...you see where I am going with this. Stocks with high short interest are susceptible to this kind of action known as a short squeeze.

Cramer understands what precipitates a short squeeze very well, and he used his television show to exploit the high short interest in Nitromed. Don't be taken in by all the hand-waving. Cramer simply pandered to those that trade on his every word in order to setup a short squeeze. This opportunity was too juicy for a self-promoting TV guru to pass up. He recognized that making a bullish call in Nitromed on his television show could cause enough buy interest to cause a short squeeze and make him look like a genius. The strategy worked very well - the stock opened today up 20% from yesterday's close.

NTMD chart.

Comments

[skepticjr:]

Bravo.

2005 Nov 10 01:05 AM