During periods of market consolidation, we like to monitor dramatic changes in levels of short interest in individual stocks. Although we choose not to do much shorting ourselves, we find it very instructive to keep a close eye on what the shorts are doing in particular stocks. While not a perfect science, by zoning into notable changes in short interest in certain stocks, you may be able to get a beat on an eventual change in trend. Say what you want to about shorting, but as far as we are concerned the shorts represent some of the smartest money on the street. Sudden movements into or out of particular stocks should therefore be given a certain amount of attention by investors. To this end, here are ten names which recently experienced a notable change in short interest in both directions.
6 Companies Where Short Interest Declined Markedly
1. Applied Materials (AMAT): For those who like to catch bottoms, Applied Materials seems washed out. Short interest declined by almost 3 million shares to 15.2 million shares short as of November 30th, a 16% drop. After making a marginal new low at $9.95, the stock has rallied over 10% as the shorts covered. With the semiconductors having bottomed collectively as a group, AMAT should have upside to $13 by the spring.
2. Autodesk (ADSK): With construction on the mend and manufacturing worldwide showing signs of improvement, we feel that Autodesk's business should recover nicely next year. Shorts seem to agree, with short interest declining in late November by 20%, from 5.1 million shares short to 4.1 million shares short.
3. Ericsson (ERIC): Like many other networking stocks, including Applied Micro (AMCC), Acme Packet (APKT) and Cisco (CSCO), not only has Ericsson bottomed, but the stock also looks poised to break out. The action within the networking group shows the power of focusing on groups demonstrating impressive relative strength - birds of a feather, tend to flock together.
Short interest declined by 25% in Ericsson right after the stock tested new lows near $8.30 on November 16th.
4. Facebook (FB): Short interest in Facebook dropped dramatically in late November, from 95 million shares short to 56.8 million shares short. Usually shorts will have a massive exodus like this after a stock has moved dramatically lower. In Facebook's case, the shorts actually exited their positions as the stock went from $22.17 to $28.
The dramatic decline in short interest makes us question what the shorts know - perhaps Facebook's monetization efforts within mobile advertising are making dramatic strides? This is our best guess. If correct, this could foreshadow a move back into the $30s next year. With the stock being added to the Nasdaq 100, it seems logical to think that as money flows out of Apple (AAPL), it will find a home in Facebook's shares. Watch for a breakout above $28.85.
5. Google (GOOG): After a dramatic miss on earnings estimates last quarter, Google's shares have recently found a bottom. While the stock seems to be range-bound, we nonetheless find it interesting to see the short with GOOG rallying almost 10% in the second half of November.
6. Veeco (VECO): With China's economy showing signs of life, perhaps the shorts are moving to the sidelines in Veeco due to the company's big exposure there? With forward estimates dropping considerably after the company's most recent quarter, one has to wonder if the trough is in for the company's business with short interest declining by 27% in the second half of November.
4 Companies Where Short Interest Surged
7. Align Technology (ALGN): Even after declining 33%, Align's shares still appear to be over-valued. Estimates are headed south and the company's stock trades for over 3X revenue. Usually you will begin to see the shorts covering in a name down 33%. In Align's case, the shorts are adding to their position in an aggressive way. Latest short interest figures show a 40% increase in shares short, from 6.3 million shares short to 8.9 million shares short.
8. BMC Software (BMC): Why would short interest surge in BMC by almost 600% in two weeks? What do the shorts know? We have been unable to answer our own question after seeing short interest surge from 2.2 million shares short on November 15th to 15.4 million shares short on November 30th. We would certainly welcome any thoughts from readers on this one.
9. Nvidia (NVDA): Like most other semiconductors, shares of Nvidia appear to have bottomed. Short interest recently increased by 65% in the second half of November. Although the short interest increased to 22.5 million shares, shares short are still only 4% of the total outstanding share count. Hard to interpret too much here at this juncture.
10. Thoratec (THOR): After a big beat on earnings last quarter and disappointing data from its rival, Heartware (HTWR), shares of heart device maker, Thoratec, have pushed to new highs in recent weeks. With forward numbers flat for next year, however, we wonder how much more upside there will be for the stock, especially with the shorts zoning into the name and increasing their exposure by 238%, from 1.1 million shares short on November 15th to 3.8 million shares short on November 30th.