SIRIUS XM SHORT INTEREST DECLINES AGAIN
Let's get this out of the way. We are Sirius XM Radio (NASDAQ:SIRI) bulls. We believe in the subscription based model and we think the company could continue to benefit from a strong foundation in the new and used domestic automotive market.
But, after a strong move in the stock amid a shaky market and after a second consecutive biweekly 7% decline in short interest, the investor sentiment towards SIRI has shifted towards bullishness. Fundamental investors should completely ignore this statistic, but short term traders should be cautious. So much of the company's strongest stock moves have happened amid strong pessimism. As such, a bullish sentiment indicator like declining short interest could signal a short term top in the stock price.
The 21.5 million share decline in short interest over the last two weeks may not seem meaningful relative to the overall total volume of shares traded during that period, but investors should remember that the daily traded volume can change dramatically. During July, daily trading volume has ranged from 36.47 million to 174.75 million shares. As such, the potential marginal impact of the 21.5 million share decline becomes more meaningful as does the gross short interest figure of 271.06 million shares. Of course, there is no obvious buy or sell level on short interest, but it is still a useful sentiment indicator.
BORDERS GROUP CAN'T FIND A BUYER
Borders Group (OTC:BGPIQ) filed for bankruptcy protection in February. Since then, they have been courted by Najafi Companies and Books-A-Million (NASDAQ:BAMM). But after announcing that nobody stepped up with a formal bid for the company's assets, they are now in line to be liquidated and sold off to repay debtors. While the company has shrunken from prominence over the years, it still operates 399 stores and employs approximately 10,700 employees.
In the short term, this will almost certainly have negative consequences for Barnes & Noble (NYSE:BKS), BAMM and other brick and mortar retailers because Borders will likely liquidate merchandise at very low prices. This short term price pressure will hurt sales and drive up inventory levels. The longer term takeaway for investors is unclear. On the one hand, this eliminates a large competitor within the brick and mortar book and gifts retail space, giving BKS and BAMM more latitude to operate their businesses. But on the other hand, Borders' inability to find buyers for even parts of its asset portfolio is a troubling reminder that nobody seems to care for the brick and mortar retail business let alone the book business.
When BKS traded at more depressed levels, we expressed bullishness because the company had a much more manageable store lease schedule than Borders and because their NOOK Color represented a cheap upside option. But investors should not ignore Borders' fate. It is could provide clues about BKS and other retail stock valuations.
TRAVELZOO SHORT INTEREST SPIKES AHEAD OF EARNINGS
The NASDAQ recently released their short interest data for the two weeks ending June 30, 2011. During this period, the Travelzoo Inc. (NASDAQ:TZOO)'s short interest jumped 42.5% to 3,580,621 shares. In the month of June 2011, short interest grew around 1.6 million shares or 80%. During that month, the stock price went from $75.14 to $64.64. In hindsight, we now know that a lot of the selling pressure in June was attributed to the sharp increase in short selling activity. Now the bias may have changed and leading up to the company's earnings, the price could be structurally positioned for outsized upside as short sellers buy back shares and create demand pressure. Of course, the company will still need to provide a fundamental basis for future stock price strength, but considering the sentiment and structural factors, the short term burden of proof may have shifted to the bears.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SIRI, TZOO over the next 72 hours. I own BKS shares but may sell shares if the stock rises.