Tuesday, June 5, 2012

THQI - Shorts Interest Increases By Almost 2 Million Shares

Shorts continue to pile into THQI by borrowing shares and selling them in the market.  Over 16 million shares have been borrowed and sold short, up from over 14 million from last month.  Shorts will make money if THQI continue to decline.  The stock is down from $35 to $.72 over the last few years and the short sellers seem to think the stock will continue to decline.  So far this month they have been wrong.

Over 27% of the shares in the market for THQI are made of up short sellers. To put it into perspective if THQI were to maintain its average daily volume of roughly 1.5 million shares it would take over two weeks for the shorts to cover their over 16 million shares through open market purchases. 

Could the shorts be over zealous here?  I believe they are.  THQI posted better than expected revenue last month, the market seemed focused on the bigger loss, but expenses can be brought under control.  New management has been brought in recently and this could help restore confidence in the company and the stock.

With the shorts so heavily positioned for more down side, and still piling into the short trade to the tune of 2 million shares a month, as the stock moves higher they will assume larger losses and have to cover to reduce additional possible losses.  This will lead to a short squeeze.  As I said it would take 2 weeks alone, just for the shorts to cover via share buying.  This doesn't include longs buying the stock.  I think this will ulitmately send THQI well over $1 a share.

We are already seeing some early stages of short covering.  Today the stock hit $.81 early before fading.  In the coming weeks and months I think the $.81 price will be looking like a great bargain.


Derek Bonello said...

What about the reverse split. How does that affect what's going down here?

Derek Bonello said...

What about the reverse split, how is this going to affect the shorts going forward?