Investing in Rumors: DOW Pulls Back Just As We Hoped
By Ian Cooper
Take a look at what’s happening with Dow Chemical. Just as we hoped, a day after the Sunday Express-fueled DOW run, the stock began to pull back… and fast. It seems the buyout premium is quickly being yanked on a poor Sunday Express report.
Here are the facts. The company denied the rumor yesterday. The company even denied the rumor again on CNBC. In fact, Dow Chemical’s CEO shot them down again on CNBC, saying “We are not in discussion with anyone in LBO. If we were, we would be the first to tell people for the right reasons…” as quoted on CNBC.com. But what the CEO did manage to do was fuel a “DOW the Acquirer rumor” simply by saying it’s open to acquiring businesses that complement its strategy.
Two, this is the second time the Sunday Express reported on a bad rumor. The first, as we noted on Tuesday, came on February 26, 2007 when the paper reported that a group of investors was putting together a $54 billion bid for Dow Chemical. On the LBO speculation, DOW shares surged about 9%, its biggest one-day move since October 2002, to $47.26. Unfortunately for gullible longs, they watched as the stock tanked from that $47.26 high to less than $42.
Please don’t buy into this rumor of an announced LBO for DOW by Friday. Once Friday comes and goes without news, there’s the likelihood of further pullbacks.
Take care,
Ian L. Cooper, Editor, Death Cross Trader
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