Growth Stocks Stirring Up Market Battles

 | Oct 28, 2011 | 3:28 PM EDT  | Comments
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Stock quotes in this article:

crm

,

ibm

,

orcl

,

gmcr

,

nflx

,

cmg

,

pnra

,

deck

,

goog

Battlegrounds now. Small-unit action. Like Salesforce.com (CRM). We have about 20 days before we find out what Salesforce.com earned. In the interim, we have a market that fell out of love with high multiples and then has fallen back in love with them. We have a market that had no faith in the future, and then we have a market where the future looks bright. We had a market where the shorts were dominant.

And now we have a market where the longs are going to hoard their stocks and make the shorts pay.

Into that arena stepped high-quality hedge-fund managers like Whitney Tilson, who shorted Salesforce.com before, right before and after appearing on CNBC's "Fast Money" and told a very compelling story about all sorts of issues, including accounting ones, that made you feel that he had uncovered the next Green Mountain Coffee Roasters (GMCR), if not the next Netflix (NFLX).

Here's the problem. Tilson could very well be right someday. But you aren't going to get a lot of news flow in the name in the interim, and what you are going to get is chatter about how Salesforce.com has been winning accounts, gaining steam and pulling away from Oracle (ORCL), which just did a catch-up acquisition, and IBM (IBM), which is doing its best but has a lot of fingers in different pies.

So, what happens?

People gun for Tilson. They decide to rip off his and, well, the collective face, of all of the people shorting CRM. Soon, two things happen: the chart goes from bad to good, which is something that the rigorous shorts and longs care about, and long-only hedge funds decide to put more money to work in the name because they see that Chipotle Mexican Grill (CMG) and Deckers Outdoor (DECK) and Panera Bread (PNRA) and Google (GOOG) are working again.

So what happens?

Two things.

There's the run-up and then there's the report. The bad news for the shorts is that the run-up could go on for weeks. The good news is that there is an earnings report coming in 20 days, and if the stock hits a new 52-week-high, it will be too high and get hammered.

The question is, do the shorts have the staying power. Or did they just put it on at the wrong level? Can they get some analyst or analysts to panic and downgrade it?

Don't know.

But don't think so.

So the battle plays out.

Right now, advantage longs.

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