Replies to post #1662 on Affymax, Inc. (AFFY)

[YngvaiMalmsteve]

The recent increase in price and volume is easy to explain.

First, you have a stock that has been heavily shorted given that the company has been distressed and is hovering near all-time lows.

Second, you have a float that is relatively low.

Third, you have an insanely bullish market environment.

Fourth, you get a Seeking Alpha pump article that goes out to the premium subscribers first. Some of them buy in response and create a bit of momentum in the stock.

Traders who see the momentum on their scans and who like to buy stocks for these reversals then also jump in.

Seeking Alpha pump article then comes out for everyone to see. More momentum traders jump in.

Stock starts to rise rapidly. Intraday traders who like to short such spikes in junk stocks start to jump in and try to short it. However, momentum traders and HFT algorithms are too much and keep buying, forcing those traders to cover their shorts, fueling an intraday short squeeze. Stock goes parabolic intraday. Some long-term shorts may also be covering.

Now with the massive increase in price and volume due to the initial short squeeze, people start speculating that there's "something" behind the move, especially given the Seeking Alpha article. More people start to buy the next day. Skeptical shorters jump in to short in, only to get squeezed again by momentum traders and trading algorithims. Float continues to churn on high volume as people keep trying to short and keep getting squeezed.

This process continues for a few days. At this point the stock is going up simply because it's going up, no different from MCOX and other large short squeezes. The low float adds to the short squeeze since shares are tough to come by (check out BVSN in early 2012 for an example of a massive short squeeze from $10 to $50 within weeks). People are again constantly speculating as to some "reason" behind the move when there is no reason, fueling more buying as people think this is a winning lotto ticket or that some type of news is coming.

Finally, the 10Q comes out and is a reality check for all the buyers, and stimulates a selloff. Some buyers will try to buy the dips but the momentum is done so there isn't anything to create a short squeeze anymore. The most probable scenario now is a slow fade back under $1, unless bankruptcy is announced before then which means the stock will gap down to around 30 cents or less.