Hi Jimmy Liberato; My guess is that this puppy runs up for another couple days, though I have been very wrong in the past.
At my trading office, shares were unavailable to short, except for the day only. The huge increase in volume of trading attracted a lot of daytraders, pretty much everyone in the office was playing it. We were able to short intraday, but not for overnight, and I expect that to remain the case for a while.
When daytraders put a stock into huge volume, they have to borrow shares even if they don't hold their temporary shorts overnight. Consequently, increased volume in a stock like this tends to cause a short squeeze independent of the price action. It's just a part of the fact that daytraders have to have affirmative determination of the availability of shares to short.
Regarding the market makers holding this one down, I wouldn't bet on it. The market makers are there to do one thing, make markets. They are not there to prevent the public from ending up buying shares at ridiculously high prices, or to bail out shorts who shorted too early.
Some good portion of the retail trade got long this stock today, but I would expect that there will be more. Retailers have a nasty and disgusting habit of not selling losing (long) positions. They also have a tendency to buy shares in IRAs or cash accounts, thereby taking their shares off the shortable market.
I remember well when the internet stocks were making doubles off of retail discovery like this. That was mostly a few years ago, stocks like KTEL ran from around $6 up to $65 over the space of a week or so. That sort of move on ADSP would be to around $30 per share. Note that the financial situation of KTEL before its run up, and ADSP are somewhat similar, in terms of market cap, total book value etc. Is the market less speculative now than it was 2 years ago? I think not. If anything, the retail trade has learned to pile in early and fast.
The larger brothers of this stock are kind of pricey as well. QCOM has a P/B of 21.12, and a P/S of 16. Those kind of multiples applied to ADSP would put the stock price around $30 per share, and were the kind of thing that an investor might think about, given the mentions all day on CNBC. Of course it is traditional to give smaller companies a higher P/S than the larger companies, so it is possible for the herd to drive this stock up to very high prices.
The vast majority of people who do anything with stocks never go short. (I myself, being a direct access trader, go short dozens of times per day.) So when a stock suddenly comes to the attention of the whole world, you can expect that the increase in long interest will far exceed the increase in short interest. This is the case even when the news is bad, and accounts for the dead cat bounce effect that is often seen.
In addition, the difficulty of shorting shares of ADSP will prevent a lot of professionals from going short. And the relatively low stock price means that guys with $2000 in their IRA will pick up 100 share lots, thereby taking those shares off the market. In addition, the prospect of running a short squeeze will attract a lot of players to the long side.
I'm not trying to say that this stock is a great bargain. It isn't. Instead, what I am trying to point out is that shorting it right now might not be a very good trade. Beanie babies aren't great bargains either, but sometimes the $5 stuffed dolls sell for $5000 each.
-- Carl |
