Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Zulily Inc (NASDAQ: ZU ) were on a wild ride this morning, opening 10% lower and then surging as much as 14% higher than yesterday's closing price after its lockup period expired today.
So what: Trading volume soared as insiders were allowed to sell shares for the first time since the flash-sales retailer's IPO six months ago -- nearly five times the average daily volume of shares had been sold by noon today. Over a million shares changed hands at market open, presumably as insiders dumped their holdings, but the stock quickly rallied after that on an apparent short squeeze. With Zulily's short interest at 63%, a majority of the market has been betting on the stock to fall, and those short-sellers were waiting to take advantage of the expected sell-off from the lockup period expiration, as posts on Twitter indicate. Once the market opened, the shorts began to cover their positions and take profits as the stock opened at its lowest point since the IPO.
Now what: For Zulily shareholders invested for the long-term, today's movement is essentially noise. Short-sellers can take control of a stock and drive day-to-day fluctuations in its price, but ultimately the stock will rise or fall based on the company's underlying profits. Similarly, investors in recent IPOs should be aware of their lockup expiration dates, which generally come six months after the IPO, as the end of a lockup can trigger a sell-off -- though as a one-time event it shouldn't affect the long-term direction of the stock. Even before today's swing, the stock has been highly volatile, spiking in February to over $70 on an earnings beat and then falling to less than $30 this morning. With the stock's sky-high P/E ratio and a huge short interest, about the only thing shareholders are assured of is more double-digit swings like today's.
Looking for your next multibagger? This stock could be it.
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.