Genesis Microchip From Three Perspectives (GNSS)

Dec.16.05 | About: Genesis Microchip (GNSS)

Lots to say about Genesis Microchip (GNSS) -- apart from the good funamental picture for a stock buy for a short term swing trader with my current trading strategy, there's lots to interest me here, from the technical, fundamental, and common sense perspective as a trader:

Technical: I have a clean gap with steady support. Back testing gives a buy at close a good chance of success for a 24-48 hour swing trade. Market makers were forced to buy to absorb the unusually high selling interest in the face of the downgrade. They may have been buying to cover, or just buying outright. Typically, though the market makers are not going to buy at a unsteady, unsupportable price. If the MMs felt they needed to take this one lower to be safe, they would have:

Fundamental: I am buying the stock of a profitable (although B-player) supplier in the LCD HDTV market, which is likely to be a growth business over the next year, and one people have their eyes on as a potential Xmas present and Super Bowl purchase.

Trading: The stock is at a very high PE unless you are looking at forward earnings. Short interest is high, and I'm sure there are Hedgies with put options on this stock. I also feel as if I'm not alone in spotting this one, since there were some very large buy orders in the last 4 minutes of trading today. There were also some day traders in this one buying hoping for a snap-back (dumb move - sorry) that had to sell at the close to get out.

Now, and the most interesting part of the puzzle; the timing of the downgrade the evening before the last trading day before options expiration smells VERY fishy. I'm not accusing anyone of anything but could possibly someone or someone's buddy's trading desk have accumulated a high volume of in and out of money puts that maybe they wanted to unload while they still could???

Now the risk of this is I am buying the day before Witching (nuff said), and the downgrade price target was 16....

On the flip side, I took a very small position here, so this trade is not likely to break me.

This is the best one I saw today among many alternatives.

* Update 12/16: GNSS did not move up today unfortunately. It didn't really drop either. I will have to delve into the options volume data to try to guess which way it will go on Monday. But it isn't an incredibly heavily optioned stock, so maybe that had less effect than I originally thought. I felt I had this one pegged as an up day today, and the market predictably humbled me.

All told, the trade went nowhere which isn't success but isn't too bad either.

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