Mellanox Technologies Ltd. (NASDAQ: MLNX) was one the great high-flyer stories of the first half of 2012, but ultimately valuation and reality caught up with the stock after shares rose from under $35 to about $120. While this sounds like a biotech outfit, Mellanox is a fabless semiconductor company that designs chips for storage, cloud computing and other new efforts.

Shares were down over 20% last night after earnings, but the stock has managed to come screaming back. Even shortly before high noon, this stock is now positive. The stock was at a low of under $42 right at the open this morning, and the stock now is up 2.6% at $53.07. Its 52-week trading range is $34.55 to $120.05. Usually when you see such a sell-off you rarely see a recovery of this magnitude.

The company had strong results for its fourth quarter, but the issue is around weak guidance. Mellanox said that its revenue will come in under $83 million in the first quarter, and that compared to a $129.5 million estimate from analysts. We have seen multiple analyst downgrades today: Craig-Hallum downgraded the stock to Hold from Buy, and Pacific Crest downgraded the stock to Sector Perform from Outperform.

Elsewhere, Piper Jaffray maintained an Outperform rating and lowered the target price to $52 from $65 due to it having a competitive advantage and due to ramping up R&D this year. Mizuho Securities maintained its Buy rating but cut the target to $60 from $75. Needham has a Buy rating but cut the target down to $47 from $75. Wunderlich has a Buy rating but cut the target down to $50 from $90.

One issue that is driving the recovery today is a short-coveriung rally. The short sellers made a killing here, and the most recent short interest was the second highest seen, at 7.293 million shares. That is almost 5.75 days to cover and compared to 7.33 million shares short the prior report.

The current trading volume is already 7.8 million shares, and the average daily volume is just over 1.5 million shares. The open interest of the most active put options for February was over 30,000 contracts, and that is representative of 3 million shares on a fully leveraged basis. The flip side is that the call options had an open interest of far less in the open interest.

Profit-taking in the put options and short-covering is largely at work here, plus some good old-fashioned bottom fishing.

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