does it make sense for SAP — the German software giant — to open its wallet and buy Red Hat, which is pushing beyond Linux to promote open source middleware and virtualization? The VAR Guy’s answer: A potential SAP-Red Hat combo makes sense. Here’s why.
The market will often move in advance, in an uncanny prediction of what is to come. Sometimes due to insider information that was unintentionally leaked. Illegal ? Yes. Does it happen often ? Yes, way way way too often.
Hence when there is no major supporting move before a takeover, I am skeptical. Its rare one does not see some indication in advance, as it is more likely to see the market move on speculation than wait for the actual announcement.
One of my better market earnings was made sometime back on shares of a company where the stock was depressed, and the volume suddenly picked up enormously. The price rose about 15% over the course of a week under massively heavy volume, and toward the end of the week I decided I needed to so something about the massive volume change and the slight price move. So I picked up a few thousand shares at a relatively high price and asked a friend I knew (who used to be the marketing manager of same company - but was retired at the time). He said he knew nothing, and he noted he checked with the company and they said they did not know why. The next day the volume was still high and price 5% higher. I immediately doubled my market position.
The next week there was an announcement of a take over, and the price went up 50%.
I made a killing, with only high volume as an indicator (for timing) and a reasonable knowledge that the company was sound, but no other knowledge. My efforts to find out more failed. But clearly the high volume BEFORE the announcement meant someone knew in advance. There typically is a reason for high volume.
In the case of Red Hat, … I don’t see indicators of the same strength, … although one never knows. If I knew for sure market information, I’d be rich instead of poor (although 2 days ago I did pickup 500 shares).