Potential for a Short Squeeze in Akamai

There is the potential for a short squeeze in shares of Akamai Technologies (AKAM).

Institutions - “strong hands” less likely to sell - hold between 82-85% of outstanding Akamai shares while short interest is 15% of the float. The short ratio, which is short interest for the month divided by average daily volume and represents the number of days it would take to cover, is 4.8%. This indicates it would take several days to buy back 25.19 million shares.

The company has a good balance sheet, with positive cash flow and very little debt. The PE ratio is 12.77% with analyst’s estimates of 12% growth per annum over the next five years. Competition in the technology sector makes long term growth estimates less reliable then in most sectors but Akamai has a solid balance sheet and good prospects going forward.

The stock has held up well since reporting earnings last week despite a faltering Nasdaq Composite Index and looks well positioned, fundamentally, for a "squeeze.”

The premise holds up on the technical side, as well, with price poised to breakout out of a classic “cup and handle” pattern on the weekly chart and through a long term downtrend line. The RSI is over 60 and the MacD is positive along with money flow. The 21 week and 43 week (200 dma) moving averages are in confluence which sometimes precedes a strong move. (See chart.)

The one negative is the effect on “all boats” in the tidal movement of the overall market. The S&P 500 is in a “battle zone” and if that tide falls then it is likely AKAM will, too. If, however, price can break above resistance with some sustained momentum, there could be a significant short covering rally that could last several days.

Disclosure : Long AKAM

Comments

[wobatus:]

Strong hands don't really matter. Dated concept. Insties often lend out shares to shorts. Some very heavily shorted shares have a more than 100% instie ownership, for the very reason they lend out so many shares.

But I like AKAM and am also long.

Nov 05 04:13 PM

[Jonha's Pop:]

Bob,

Have you run this by Dan Rayburn ? I believe he expects Akamai to 'go belly-up' soon.

Nov 06 09:19 AM

[L B:]

AKAM has been underperforming systematically the market this year and seems to have a resistance level around 23.5. My bet is that they are loosing market share. Also dec and jan 20 put are outnumbering calls. I am actually short on Akamai.

Nov 07 07:40 AM

[Robert Moreno:]

I understand the longer term fundamental issues. I was focusing on the short interest and the short ratio. I mentioned several other metrics in the interest of being balanced in my analysis.
The technicals look accommodative in the context of a potential short squeeze which by definition and based on the short ratio time frame is a trading opportunity. I mentioned a time frame of only "several days." I appreciate your comments. Thanks. Rob


On Nov 07 07:40 AM L B wrote:

> AKAM has been underperforming systematically the market this year
> and seems to have a resistance level around 23.5. My bet is that
> they are loosing market share. Also dec and jan 20 put are outnumbering
> calls. I am actually short on Akamai.

Nov 10 01:53 PM

[Robert Moreno:]

I understand the longer term fundamental issues. I was focusing on the short interest and the short ratio. I mentioned several other metrics in the interest of being balanced in my analysis.
The technicals look accommodative in the context of a potential short squeeze which by definition and based on the short ratio time frame is a trading opportunity. I mentioned a time frame of only "several days." I appreciate your comments. Thanks. Rob

On Nov 06 09:19 AM Jonha's Pop wrote:

> Bob,
>
> Have you run this by Dan Rayburn ? I believe he expects Akamai to
> 'go belly-up' soon.

Nov 10 01:53 PM

[stonedinvestor:]

Akami is going to $29 I'm not sure why. Great chart. Robert, I'm going to click onto "followers" but don't send any emails! It's because of that cool ocean behind you. You seem to have your priorities in order. Good stuff! ~ stoney

Nov 11 09:02 AM