Sirius XM: Short Interest Could Trigger Another Super Squeeze

Dec.28.12 | About: Sirius XM (SIRI)

The short interest for Sirius XM (NASDAQ:SIRI) has just been announced, and it is the highest that I have ever seen, at over 370 million shares. That is staggering. Here are the latest numbers, just released late Wednesday from NASDAQ:

Settlement Date Short Interest Avg Daily Share Volume Days To Cover
12/14/2012 370,368,894 76,216,420 4.859437
11/30/2012 339,089,166 66,204,795 5.121822
11/15/2012 296,274,375 77,234,323 3.836045
10/31/2012 297,872,278 89,227,709 3.338338
10/15/2012 274,885,838 78,466,299 3.503234
9/28/2012 288,562,482 71,537,122 4.033745
9/14/2012 298,931,286 51,620,375 5.790955
8/31/2012 283,157,528 49,200,676 5.755155
8/15/2012 259,752,029 105,444,881 2.463392
7/31/2012 329,897,851 38,065,661 8.666547
7/13/2012 304,461,310 43,694,659 6.967930
6/29/2012 289,951,168 33,488,425 8.658250
6/15/2012 298,260,697 28,277,090 10.547786
5/31/2012 306,525,780 59,829,225 5.123345
5/15/2012 294,106,223 87,262,664 3.370356
4/30/2012 271,252,407 42,569,238 6.372029
4/13/2012 285,024,747 67,168,964 4.243399
3/30/2012 287,587,035 40,523,817 7.096741
3/15/2012 307,802,184 47,153,056 6.527725
2/29/2012 285,847,828 56,846,316 5.028432
2/15/2012 273,099,537 57,381,551 4.759361
1/31/2012 304,862,970 63,744,120 4.782605
1/13/2012 305,095,277 67,336,410 4.530911
12/30/2011 301,375,854 25,064,720 12.023907
12/15/2011 299,035,691 43,216,094 6.919545
Click to enlarge

However as Stephen Faulkner points out in his article, this may not be what the short interest is at this moment, due to the two-week delay in reporting. And he thinks that the bears are on the wrong side of the bet when it comes to Sirius:

Shorts have been burned repeatedly since Sirius XM began its uphill climb at the beginning of July. The "wrong" bet has been on the short side again and again. Consider that the position which settled on July 31, was a high point of 329 million, yet these shorts were forced to cover to the tune of 70 million shares as the share price took off wildly over the next few days to fresh 52-week highs.

Actually, unless these short investors were extremely clever in their ability to move in and out of their positions, betting against Sirius has been a losing battle for several years now. It is extremely dangerous to short a stock that is trending upward. And it has been heading up for four straight years. You can see on the chart below that there are dips within the pattern, but trying to time those is very difficult, if not impossible:

Chart forSIRIUS XM Radio Inc.

Back on January 2, 2009, the shares were only 12 cents. Each year there has been an increase all the way up to the current price of $2.91. Many short investors may think that this continuous climb cannot continue. Looking at the chart, the smallest annual increase was during 2011 at 12%. But sometimes the highs and lows do not coincide with the end of the year. For instance the high in 2011 was $2.41, right before the macroeconomic problems that began later that summer:

Date Price % Increase
January 4, 2010 $.61 408%
January 3, 2011 $1.67 173%
January 3, 2012 $1.88 12%
December 28, 2012 $2.91 55%
Click to enlarge

The total increase for the last four years is 2,325%. Which makes the average rate of growth over that time 581% per year. This should not be confused with the average annual increase. But no matter how you slice it, it continues to go up, which can only have one result; a short squeeze. And if there really are over 370 million shares that have been shorted, we will see a "super-short squeeze." Someone once said to welcome the shorts into Sirius. They will provide the rocket fuel when they are forced to cover. Some people do not believe that large short interest will trigger buying pressure in the market. But I have seen it happen too many times in the past to not "believe."

A lot of the growth at Sirius is being driven by the huge demand for new cars. Right now the average car on the road is over 11-years-old. And TrueCar.com is estimating December 2012 sales to come in at almost 20% over November sales. SAAR is expected to be 15.6 million compared to 13.6 million in December 2011. Combine this with the January effect, and a huge amount of short interest, and it could send the shares literally soaring. Could it be that the shorts know something that the rest of us don't know? I wouldn't bet your rent on it.

On July 29, I wrote an article about the possibility of a super-short squeeze at that time. There was a lot of good news, including record earnings, and new car totals. And there was short interest of over 329 million shares. The stock shot up 25% from a low of $2.10 to a high of $2.64 in three weeks:

Date Open High Low Close Volume Adj Close*
Aug 20 2.60 2.64 2.56 2.56 68,035,700 2.51
Aug 17 2.60 2.60 2.55 2.56 35,728,200 2.51
Aug 16 2.55 2.60 2.51 2.59 85,855,400 2.54
Aug 15 2.56 2.57 2.48 2.55 81,718,800 2.50
Aug 14 2.52 2.54 2.47 2.53 83,453,000 2.48
Aug 13 2.49 2.52 2.48 2.51 75,479,600 2.46
Aug 10 2.38 2.49 2.37 2.48 137,657,800 2.44
Aug 9 2.49 2.49 2.33 2.40 121,589,500 2.36
Aug 8 2.28 2.51 2.28 2.48 325,221,900 2.44
Aug 7 2.25 2.34 2.22 2.30 191,528,600 2.26
Aug 6 2.17 2.23 2.17 2.20 67,440,700 2.16
Aug 3 2.13 2.17 2.12 2.16 31,141,200 2.12
Aug 2 2.14 2.16 2.10 2.11 31,491,100 2.07
Aug 1 2.18 2.18 2.09 2.15 34,384,600 2.11
Jul 31 2.19 2.20 2.14 2.16 25,607,100 2.12
Jul 30 2.18 2.20 2.15 2.19 32,261,100 2.15
Jul 27 2.12 2.17 2.10 2.16 68,744,900 2.12
* Close price adjusted for dividends and splits.
Click to enlarge

Everyone is free to invest their money based on their own due diligence and gut instincts. Some investors are banking on a recession from the fiscal cliff, while others think it is all a bunch of hype. I personally think that the fiscal cliff, if not handled correctly, could cause very serious damage to our economy. However, many analysts feel that new car sales will be unaffected by all of the gloom and doom. Sirius could lose a few subscribers from an economic downturn, but due to the low price of $15 per month, I do not think the loss will be significant enough to cause a big dip in the share price. If it is, Sirius has $2 billion at its disposal to buy the shares itself. So shorts beware.

Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.