Russell recon day is always...
... interesting. No doubt a large amount of shares will have to be sold on or about that day, I would guess about 1 - 2 million shares (though that's just rank speculation, I bet someone has done the calcs). I have always believed the impact is only temporary since there's no coincident change in the fundamentals, and that typically seems to be more or less true at least for when it gets into the indexes. But when it gets booted, as it will now, all those shares suddenly becoming available should depress the stock price a bit (depending, among other things, on how much the specialist puts at risk) or a lot, but whether it bounces back to similar levels could be hampered by investors risk aversion tendencies.
That is investors tend, on average, to dislike $1 of losses more than they like a $1 of gains, so when the stock gets hit, it'll reach investors' selling points (to avoid further losses) faster than it'll would when it moves up (when they'd capture profits). Selling begets selling more than buying begets buying and the upcoming drop could drive more to sell and prevent the stock from regaining it's previous levels.
Plus, if it goes below $1 and stays there for 30 days, I think, it runs the risk of becoming delisted which would further drive sellers motivation. Though delisting in this case is easy to remedy via a reverse stock split (but that brings up a diffeerent issue - there's conclusive research that shows that companies that split their stock tend to have continued rises in the stock price while companies that reverse split their stocks tend to show continued deterioration in the stock price).
One big variable in this equation is what the shorts do. While I believe a lot of them are waiting for ultimate bankruptcy when to close their positions and pay the taxes, all the stock becoming available gives them an opportunity to close out their positions without (and this really cracks me up) "lighting the rocket fuel." (God Lynn is an idiot for even saying that much less thinking it.) My gut tells me the shorts have looked at the balance sheet and would prefer to wait a year or two until the company goes bankrupt before being forced to recognize their gains and pay taxes. And that deadline can stretch on for even longer - their are plenty of penny stocks trading in the mils ($0.001) that represent the worthless equity of bankrupt companies that have long since ceased operations. The shorts do not have to recognize their gains until the stock is actually cancelled. Meanwhile they already have the cash from the short position.
Anyway, it'll be interesting. So will the next 10Q.
As always, all of the above are just my opinions. No facts are asserted.
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