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bubbydaddy
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CHK is getting added to the S&P500 end of day March 2. This is a natural gas stock. Recent quarter earning were almost double expected. Stock price rose for a day and promptly dropped back down pre-earnings levels. CHK appears to have been dragged down recently with the rest of the energy industry. There is much noise on the Yahoo board about the index funds having to buy CHK and thus price should rise. Can anyone provide info on this type of "added to the index" play? I happen to own some shares bought before this announcement and have stumbled into this situation. When exactly do fund managers have to buy this stock to keep their portfolios inline with SP500? Volume hasn't seemed to match what I would expect. Will it happen all at once or will it be spaced out, or has it already happened piecemeal since the Monday announcement: http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml: reuters.com:20060227:MTFH19373_2006-02-27_22-32-30_N27483159&symbol=CHK.N


Thanks in advance to those with the knowledge who are willing to share it.

Bubbydaddy

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Posts: 49 | From: Tucson, AZ | Registered: Jan 2006  |  IP: Logged | Report this post to a Moderator
bubbydaddy
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link posted above appears to not work trying again:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:reuters.com:20060227:MTFH19373_2006-02-27_22-32-30_N27483159&symbol=CHK.N

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bubbydaddy
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I found the article below which sheds some light on my question. If I understand correctly, EOD tomorrow should be the peak in both volume and price, all else equal. I'd still appreciate any input from those who've been round the block on this.

Who Said Indexing Was Simple?
By Don Luskin
Special to TheStreet.com
Originally posted at 5:16 PM ET 7/25/00 on RealMoney.com


Over the last few weeks, I've received dozens of emails asking questions in
response to my articles The Inner Circle and Predictable Chaos, on what
happens when stocks are added to (or dropped from) the S&P 500 Index. That
last column focused on two events this week: the addition of JDS Uniphase
(JDSU:Nasdaq - news) (and the dropping of Rite Aid (RAD:NYSE - news)), and
the more complex game surrounding the substitution of Palm (PALM:Nasdaq -
news) for 3Com (COMS:Nasdaq - news) when 3Com spins off the rest of Palm on
Thursday.
I'll try to answer some of the most frequently asked questions here.
· Question: Do index funds have to buy or sell right at the close when a
stock is added or dropped?
Index funds are for investors who want to eliminate as much risk as possible
from the equity investment process -- where "risk" is defined as deviation
from the performance of the overall market. So most indexers interpret it as
their duty to simply track the index, even if that means leaving some
opportunities on the table. This means that most indexers will, in fact, buy
stocks added to the index (and sell stocks dropped from the index) right at
the close.
But that doesn't mean they can't earn a little extra return by recognizing
the market-moving power of their order flow -- they just don't want to take
any risk to earn it. That's why they do split-the-gravy deals with brokers.
"Ramping the close" is a risky game, so the indexers let the brokers run it
for them -- and they make the brokers take 100% of the risk for 50% of the
gravy.
· Question: How does it work when a broker "ramps the close?"
"Ramping the close" means intense buying (or selling) just before the close,
in an attempt to move the closing price up (or down). When a stock is added
to the S&P 500, a broker working a large market-on-close, or MOC, buy order
in that stock for an index fund will execute that order in the last 30
minutes of trading. (An MOC buy order is a type of trading order that tells
the broker you will pay the market price for the stock at the closing
price.) As the trade impacts the market, the stock's price moves higher and
higher -- ideally, for the broker, the closing price is the highest of all.
Why? Because then the average price of all the buys in the final half-hour
will be lower than the closing price. Suppose the broker pays 150 for 1000
shares, 151 for another 1000 and then 152 for a final 1000, with the last
trade made right at the close.
His average price across the 3000 shares is 151 -- and that's one point
better than the closing price of 152. Remember, the indexer asked for the
closing price -- so anything better than that is pure gravy, and the broker
and the indexer usually split the gravy.
· Question: Why do some stocks rally on the day they're added, and others
do not?
Most stocks do rally on the day when they are added -- it's usually just a
question of how much. But there is the occasional exception. For example,
when Veritas (VRTS:Nasdaq - news) was added to the S&P 500 on March 31, it
fell from 145 1/4 to 131.
There was no negative news out on Veritas that day. In fact, the day before
it had just been upgraded to "buy" by Salomon Smith Barney. The most
compelling explanation is the market background, in combination with the
games-within-games that inevitably whirl around S&P adds.
March 31 was the second-to-last day in the first precipitous plunge that
kicked off last spring's brief but intense Nasdaq bear market: By that date
the Nasdaq had already plunged over 700 points. Perhaps traders who thought
they were in for a free lunch by loading up on Veritas when its addition to
the S&P 500 was announced two days earlier got scared out, and dumped their
shares before the close.
· Question: Why do some stocks drop the day after they are added to the
index, while others do not?
Yahoo! (YHOO:Nasdaq - news) ran up precipitously when it was added to the
S&P last Dec. 7, and fell from 174 to 159 13/16 the day after. On the other
hand, Broadcom (BRCM:Nasdaq - news) soared too when it was added on June 30
at 218 15/16, but it has never traded lower since.
Depending on how you believe markets work, you could convince yourself
either that stocks should decline after they're added, or that they
shouldn't.
If you think that an addition to the S&P is not real "news," then the
run-ups in these stocks are an artificial and temporary liquidity phenomena,
and we'd expect them to drop as soon as the phenomenon passes. But if you
think that addition is a meaningful event -- equivalent to an upgrade by an
influential analyst -- then you'd expect a lasting increment to valuation.
But either way, I suspect that the short-term morning-after effect is
another consequence of the games-within-games played by traders, brokers and
indexers. The most likely culprit is the broker who has to buy more stock to
"ramp the close" than his indexer client really wants to buy. That means
he's holding the bag the next morning and needs to get out in a hurry.
· Question: If, in anticipation of the substitution of Palm for 3Com this
week, indexers sell 3Com on the close this Thursday, they won't get the Palm
shares they need. Does that mean they'll have to sell their 3Com the next
morning, rather than on the close Thursday?
Indexers who hold 3Com do need to be holders of record on Thursday to get
the Palm shares they'll need. But there is a simple way for them to
nevertheless sell their 3Com position right at the close on Thursday. All
they have to do is sell COMSV (COMSV:Nasdaq - news), the "when-issued"
version of 3CCom that trades without embedded Palm shares.
· Question: Where will JDS Uniphase close on Wednesday? What should I do
with my shares?
Yup ... I've gotten dozens of emails asking me this question. Of course I
don't have the answer, and no one else does either. But it is the right
question.
I don't know which model JDS Uniphase will emulate -- Yahoo!, Broadcom, or
Veritas. All I do know is that the odds favor a strong continued upside bias
right into the close on Wednesday.
If you're a long-term believer in JDS Uniphase, then you should be thankful
for the gift you've been given, and should probably continue to hold unless
you have some reason of your own for selling -- S&P add or no S&P add.
If you've added to your position or put on a new position to play the S&P
add game, then you should probably be a seller sometime in the last hour on
Wednesday, and be totally out by Thursday morning. The game is over then.
All the art will be in picking the exact time to get out. And don't
forget -- you won't be the only one trying to figure it out. That revolving
door could get crowded.


Don Luskin is President and CEO of MetaMarkets.com, and a portfolio manager
of OpenFund. At time of publication, OpenFund was long JDS Uniphase,
although holdings can change at any time. Luskin appreciates your feedback
at d...*metamarkets.com.

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bubbydaddy
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and for those of you saying "I don't care about CHK, it's PPS is way out of the range this board likes to play, so quiet down bubbydaddy", here is my first pick: DCN

They are the co. getting dumped by the S&P500 for CHK. They are way down, chart indicates bounce, are rumored to have secured debt relief, and PPS is 1.85.

History supports them DCN rising more than CHK out of this S&P500 switcheroo:

http://moneycentral.msn.com/content/Investing/Powertools/P38979.asp

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bubbydaddy
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DCN just got even better:

AP
Dana Misses $21 Million Interest Payment
Wednesday March 1, 5:55 pm ET
Dana Misses Deadline to Pay $21 Million in Interest on Certain Senior Notes, Shares Slide


TOLEDO, Ohio (AP) -- Auto parts manufacturer Dana Corp. on Wednesday said it didn't make the $21 million interest payment that was due today on certain senior notes.
However, the company noted there is a 30-day "grace period" on the interest payments.

The payment was due on Dana's its 7 percent senior notes due March 1, 2029 and its 6.5 percent senior notes due 2009.

Failure to pay the interest by March 31 would push Dana into, permitting the indenture trustee or holders of 25 percent or more of the notes to accelerate the debt's maturity. Such an acceleration would also speed up the maturity of the company's other debt agreements.

Dana shares fell 48 cents, or 26 percent, to $1.37 in aftermarket electronic trading, after closing up 9 cents, or 5 percent, at $1.85 on the New York Stock Exchange. The stock has plummeted from a year-ago high of $17.03 to a three-decade low of $1.50 last week.

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bubbydaddy
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Just for closure:

CHK volume was over 28 million at close yesterday with the price spiking in the last 5 mins of trading as predicted in the street.com article I posted above. I held all day and got out at the HOD. After hours trading saw another 50+ million of volume as the institutions did their deals. Volume today was normal and price barely changed. Lot's of fun watching the last hour yesterday!

History predicts CHK will fall a bit now all else equal (i.e. nat. gas prices remain the same)

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