Short Squeeze vs. Selling Panic

When Apollo Group announced explosive earnings growth earlier in the week after market close, the share price plummeted in after hours, and continued its torrid selling pressure through most of the trading session, ending up the day as one of the worst-performing stocks in the exchanges.

After market close today, Research in Motion (Blackberry manufacturer) mildly beat earnings expectations, and the share price immediately rocketed up after hours, and will open tomorrow up almost 30%.

Why the difference in outcomes? No one knows for sure, but I'll speculate APOL's future guidance by management during the earnings announcement was poor, despite the past quarter of explosive earnings growth and increased enrollment at the University of Phoenix. Allegations and a history of lawsuits and fines by the Department of Education regarding business practices and high default rates on student loans has clouded this company for months. The counter-cyclicality of for-profit education companies has taken their share prices to lofty valuations. Despite great earnings--which are backward-looking, future guidance--or more correctly, lack thereof, doomed this stock. Markets don't like uncertainty, and Wall St. is a forward-looking mechanism.

With RIMM, earnings beat expectations, and margins came in at 43-44%, both above Street projections. But more importantly, despite looming bad economic horizons, RIMM rewarded investors confident in holding market share and profit margins going forward.

Two similar earnings projections, two totally different outcomes.

My put options on APOL paid off handsomely earlier in the week, and the share price is in the process of consolidating and recovering from the bloodbath. I will not make any recommendations for regulatory purposes and also because I am neutral on APOL, having closed out my puts for a nice profit. I still have a small long-term put in place that I have mostly closed out and taken profits on.

Disclosure: I own January 2010 APOL put options, and neutral to slightly bearish.