Yesterday’s action from Microsoft (NASDAQ:MSFT) and Yahoo! (NASDAQ:YHOO) proves investors are desperate, says Andrew Snyder. He says investors should avoid buying into rumors that Microsoft will bid again for Yahoo! This is a perfect example of an over-hyped market trap.

This from Today’s Financial News:

If you are a CEO and even thinking about hinting at some sort of merger or acquisition in this market, you had better be certain you know what you are doing.

Microsoft’s chief, Steve Ballmer, learned the lesson the hard way today.

During a question-and-answer session in Florida, the CEO told an audience member that a deal between his company and Yahoo! still makes “economic sense.”

Well, you would have thought he wrote a check right there on stage.

Rumors were rampant and shares of Yahoo! soared by over ten percent. Apparently, there are some folks that still think Microsoft will shell out $33 per share for the company.

If you recall, earlier this year, Microsoft handed Yahoo! shareholders a buyout offer worth nearly $50 billion. It was not good enough for the internet giant. Shareholders wanted more.

But Microsoft never came back to the table and shares of Yahoo! have dropped ever since. Right now, they are down by nearly 30% from their highs.

Don’t count on it

The rumor certainly has its financial merits.

I am sure Microsoft would love to get its hands on Yahoo! at today’s prices. But Yahoo! is not the same company it was back then. And neither is Microsoft. The nation is in the midst of a major financial crisis.

It is not business as usual, especially in the information game.

When Microsoft came out this afternoon and said it has no plans to re-negotiate with Yahoo!, I believe it. Both parties walked away and are not coming back anytime soon.

This is a tempting play for in-and-out traders. But in reality, it is another over-hyped market trap.

Stay away from it.

The share price of both companies is in line with the rest of the market. Their options are overpriced across the board. And Microsoft is too big to move from such minuscule rumors.

Stay away from this tempting play. There are better opportunities out there.

Source: Investor desperation: Microsoft (MSFT) and Yahoo! (YHOO) go nuts