Sunday, July 22, 2007

Extreme Narrow SWC Floats Gets Narrower

I previously posted about the extreme narrow floats of SWC, and consider it one of the bullish reasons for SWC besides the fundamental reason of palladium bull. Latest data show that the narrow floats are getting even narrower.

Out of some 91.6M shares of SWC, most are owned by Norilsk and insiders, floats available to institution and retail investors are only about 42M shares. Institutions are getting an ever larger portion of that pie of float shares, squeezing out retail longs.

Shortly before the $8 bottom of SWC last year, the institution holdership was only 18%, less than 17M shares. Retail investors owned more than 25M shares of the floats. At the $8 bottom many retail longs could not take the pain and sold out to institutions. Shortly after the $8 bottom, NASDAQ statistics showed instititions owned nearly 38% of all the shares, just slightly less than 35M shares. The majority of the 25M retail longs were squeezed out.

The institution holdership is getting even higher. The latest data on bloomberg list the floats at 40.204M shares, which is slightly lower than previous data. Mean while NASDAQ.COM shows the institition holdership now stands at 37.429M (37.736888M on July 26) shares. So you subtract the two, and you see the retail investors now only own 2.775M shares of the float, that's far less than the 25M to 26M that retail investors once owned before the $8 bottom last year!

The retail longs now only own 2.775M shares, however the outstanding shorts on SWC dramatically increased from last month's 5.284M shares, to now 6.0125M shares short. The outstanding shorts are more than twice the retail long positions. That means even if all retail longs sell their SWC positions here, there will NOT be enough shares to allow shorts to buy and cover. How are the majority of shorts going to unwind their short positions?

It really perplexed me how the short interest would have dramatically increased from June 15th's 5.284M, to July 13th at 6.0125M. If you look at the chart, the plummet started in May 7th was largely done on May 18th, and SWC was just trading sideway ever since. A reasonable shorts would have covered and take profits and walk away. How come short interest see such a dramatic increase from mid June to mid July?

Very likely, I guess there is one big player gets trapped in too big a short position to unwind here. They can not unwind here because there are just not enough shares to buy to cover. Any attempt to buy and cover in significant amount will pop up the stock price. So they have to buy themselves time and prevent SWC from going up by shorting more, piling on more short positions, and hence digging themself deeper in this hole where they hold too much short position to unwind now.

If this trapped big short player exists, the friday plummet with big volume is probably their last ditch effort to take the opportunity of a presumed bearish news release, hammer the stock down, force the longs to sell and so they can cover their shorts. But it looks to me they have failed miserably. There was no panic on the long side. The support was firm at $11.20. Not only longs did not sell, they bought the dip at the $11.20 line. Most of the sells were the short selling of this one big short player. So the big short ended carrying an even bigger short position instead of covered their positions. Many yahoo SWC message board postings also confirm that the majority of retail longs bought instead of sold on Friday.

I see a fierce short squeeze coming once we see a nice precious metal rally. It is coming right now as the US dollar is at the brink of falling below the psychological line of 80.0. BTW I also note some unusually high volume of palladium future trading on Friday July 20th, several times higher than usual, although I have no explanation what caused the unusual high volume.


Calex said...

I finished reading just about everything in your blog, including the material linked to external sources. You've clearly done your homework and made a strong case for SWC. Well done.

As you mentioned in your first post, the whole scenario is dependent upon a sizeable move in palladium. It's pretty clear from your research that any decent uptick in palladium will send SWC through the roof.

I particularly find affinity with the way you've unearthed a probable big player holding a large short position that they can't cover because of the lack of float. It is now probably more than one player, however, because when professionals get in trouble, they call their friends to bail them out. That may be exactly what is occurring right now with Friday's action.

I'm going to look more closely at the technicals over various time frames and find a new entry point. I'll post the technical analysis on my blog in the next day or so. In the meantime, I'll probably jump on board SWC with a call option tomorrow morning so that I have exposure with minimal technical risk. One thing I noticed with a quick glance at the long term chart of SWC is that it lags the tech sector by about three quarters with a strong correlation. [chart]. This makes technology a statistically reliable leading indicator of the price of palladium.

Thank you for sharing your good research. I'll continue to watch this developing scenario and stay tuned to your posts.

- Calex

Anonymous said...

We stumbled oνer hеrе bу a different websitе and thought Ι might cheсk thingѕ
out. I like ωhat I ѕee sο now і am following yоu.
Loοk forωard to looκing over youг ωeb page уet again.

Feel free to visіt my homepage - bucket trucks
Have a look at my weblog : bucket trucks for sale

Anonymous said...

What's up Dear, are you genuinely visiting this website regularly, if so afterward you will without doubt get good know-how.

my web-site - tens unit
Also see my website > tens therapy


Interesting post nice take on things.