Short Squeeze and Price Moves
Joe C,
From the shorts who have posted here, it seems that many of them decide to short on their TA. Often, that means when DELL reaches a new high, or a higher P/E.
Logically, however, DELL frequently reaches those new highs as it moves closer to earnings because the market has come to realize that DELL consistently beats the estimates. Therefore, it tends to move up strongly when it does move, as a lot of MoMo investors jump on board to play the earnings.
If one is short DELL prior to one of its famous rocket rides, then by definition, one's margin requirements go up in tandem. Sometimes that means that shorts have to cover. I don't know how many covering shorts constitute a "short squeeze", but if any do, then they add to the rocket fuel.
Some shorters, such as Lucretius Taurus, prefer to have a defined risk and simply purchase the long-term put options. They cannot lose more than the price of the option (not including opportunity costs), regardless of how high DELL goes.
DELL does tend to have a cyclical price fluctuation where shorters can make money. Assuming no extreme external factors, immediately after earnings the momentum investors leave, and the price tends to sag a bit for about one month. NOTE, however, that this is not always the case, and is subject to other factors, such as split announcements, super earnings, IDC reports showing DELL gaining market share, etc. General Rule, it is hard to make money shorting DELL, while you can make money in your sleep if you are long. Corollary 1: you can lose a LOT of money shorting DELL, but you can always make money going long and holding.
DELL has frequently been mentioned as the Stock of the Decade: there are very good grounds for this appellation. Show me a better company and I'll buy it, too.
Just my take,
DELLish, 3.
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