What the ****…? Demand Media (DMD)

By: ispeculatornew
Date posted: 08.11.2011 (5:00 am) | Write a Comment  (1 Comment)

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You might have read my post last week when I discussed how every trade that I have done lately has turned out to be a winner. It was probably a (very!) bad idea to think about it and writing a post on here? Who would even think about that? Well, I did. Starting the day yesterday morning, I had two trades, which as is usually the case are long and short, giving me less exposure to market swings like those we’ve had in recent days.

After Tuesday’s market close, Demand Media (DMD) did come up with its earnings and both the top and bottom lines came in ahead of expectations, very slightly. I did not get a chance to verify the market reaction at the opening and since I do not use intra-day stops, it did not matter much anyway. However, when I did look, Demand Media was doing incredibly well, rising nearly 20% on the day leaving my trade at -30% or so!!! So my post had jinxed my trading it seemed and so I tweeted about it. I should have known better… no excuse for that.

Here is the 2 day chart for DMD:

However, those same that had taken Demand Media to these incredibly highs seem to have ran away at 10AM EST or so leaving the stock back to what it usually does… TANK. Look at this year-to-date chart:

Impressive post-IPO performance hey? That is what happens when a company relies on an unproven business model, has a shaky accounting history and depends heavily on a company (Google-GOOG) that is trying to send less of its business to properties like those DMD owns (often referred to as content farms).  I still do not understand how Demand Media could have closed at $8.98 on Tuesday, reached $10.75 (a 20% gain!!!) only to end the day 23% lower than its high of $10.75. I know the markets are volatile and undecided these days, but can someone provide any type of explanation?

I’m obviously not complaining as my trade on Travelzoo (TZOO) and Demand Media (DMD) now stands at a much more reasonable -11% (with my annualized return at 165%)… there I go again jinxing myself. One thing I can tell you is that the next time I have a trade down big time like yesterday, I will once again tweet about it in the hopes of creating a repeat:)

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1 Comment

  1. Comment by Ken — August 11, 2011 @ 9:34 pm

    The swings in DMD have all the earmarks of algo trading. Probably some of the algos noticed the big spike in DMD on the opening and started playing it. Much the same dynamic is driving the market as a whole.

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