The recent drop in VirnetX's (NYSEMKT:VHC) shareprice was a result of one of the greatest bear raids I have ever seen. Here is my analysis:
Share prices fall dramatically for two reasons:
Number one: the company announces extremely negative news.
Number two: short sellers invent negative news.
In the case of the recent VirnetX shareprice drop, the cause is attributable to short seller manipulation. Misinformation and obfuscation scared investors, hence the massive selloff.
You have to remember that when VirnetX was trading at $42 a share, some large hedge funds were down about $500 million. Desperate measures were needed to prevent further losses.
I actually have great respect for the short sellers in this case. This was an intelligent, and well-planned attack. My only regret was that I didn't see it coming.
In retrospect, when shares were trading at $42, it was obvious that the short sellers needed to make a move. What surprised me was the level of the execution. This was a beautifully orchestrated military style operation, with multiple, well timed attacks.
But, as is normally the case with manipulation, the fall in share price was based on misinformation and fear. There was nothing in the bear raid that represented any actual problems VirnetX is facing. The reality is quite the opposite: VirnetX has never been in a stronger position, which is precisely why the bear raid was necessary.
Today's announcement of VirnetX's NEC settlement is just another example of what the shorts are facing. VirnetX is a well oiled machine, unstoppable in this patent war. The bear raid effects will be temporary, and future attacks should be less effective, due to a lack of credibility, particularly from the uninformed, anonymous author front.
According to Justin Moreno, VirnetX shares are worth $118, TODAY. After numerous conversations with Justin, I think he is by far the most credible and well informed VirnetX analyst out there. His level of due diligence is far greater than the short sellers, and if he believes VirnetX shares are worth $118 today, I pay attention.
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Disclosure: I am long VHC.