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After peaking at nearly 1,350 in late-July, the S&P 500 index managed to climb from a bottom reached on October 3rd, 2011 at 1,100 points, an 18.5% drop. The widely watched index then managed to close recently at 1,224.58, up over 11% in just 9 days.

Why? Part of the recovery is due to the perception that macro risks are subsiding. The fear of a failure in the banking system in Europe is subsiding. The default of Greece, while nearly assured, is not thought to cause a bank run. Finally, bears are taking profits by short-covering on already beaten up stocks.

The Nasdaq index with the largest short interest versus free float would be a place to look for long or short investments ideas. All figures are as at September 30 2011.

Level 3 Communications (NYSE:LVLT)

Ticker

Name

Equity Float / Float %

Equity Float (In mln shrs)

Sh Interest (In mln shrs)

LVLT

LEVEL 3 COMM INC

10.71

183.96

1,717.61

Level 3 shares are set to report earnings on November 2 2011. Offering IP-based communications services to corporate customers, the company completed its purchase of Global Crossing (NASDAQ:GLBC). There is limited upside to this company, due to reduced cash flow in the immediate term, and a 1:15 reverse share split that will take place on October 19. Although cash will be used to redeem Global Crossing debt, the company still has a high level of debt. Level 3 offers speculative profits from trading, and is not ideal as a long term investment.

Jetblue Airways (NASDAQ:JBLU)

Ticker

Name

Equity Float / Float %

Equity Float (In mln shrs)

Sh Interest (In mln shrs)

JBLU

JETBLUE AIRWAYS

15.16

37.71

248.82

Jetblue rallied 31.52% from its low of $3.50. Speculative investors would have profited handsomely in the last 9 trading days. Investors should be reminded that airlines sell a commoditized product. Warren Buffet once said that if he was ever tempted to buy any airline stock, he would need to make a call to be reminded not to do so.

Investors should take this advice to and avoid airlines, no matter how big share prices move.

Microchip Technology (NASDAQ:MCHP)

Ticker

Name

Equity Float / Float %

Equity Float (In mln shrs)

Sh Interest (In mln shrs)

MCHP

MICROCHIP TECH

11.48

21.30

185.48

The semiconductor sector sold off as sharply as resource and mining stocks, because investors anticipate a slowdown in the world economies. China recently reported slow growth figures. The Asian tiger experienced reduced exports after the world fixated on the debt problems of Greece.

Trading at a fairly valued P/E of 15.20 (and a $33.45 close on October 14th), investors correctly sold off shares when the company reported that the expected strength in demand during the Christmas holiday was not materializing. The fear by customers is impacting the growth of microchips. Sales are now expected to be down 11% to $340. million, compared to up to a $370.8 million forecast.

A fair valuation and expected weakness is good news for investors who want exposure to this sector. Patient investors will also be paid a 4% dividend while the macro headwind story sorts itself out. Even more conservative investors may want to consider Intel Corporation (NASDAQ:INTC), that has a dividend yield of 3.57% but has a P/E of 10.78.

Clearwire Corporation (CLWR)

Ticker

Name

Equity Float / Float %

Equity Float (In mln shrs)

Sh Interest (In mln shrs)

CLWR

CLEARWIRE -CL A

28.17

41.41

147.01

Clearwire, up 28.23% from its $1.24 low, closed recently at $1.59. The company reported better-than-expected subscriber growth. Faced with a possibility of bankruptcy, the company reported a better cash balance of $700 million. Clearwire also depends too much on Sprint (NYSE:S). Recent comments that MetroPCS may form a spectrum deal with Clearwire helped avert fears the company will go bankrupt.

Clearwire is another speculative play. Investors will need to weigh the risks of further cash flow declines against the ability for the company to raise additional debt to upgrade its network.

GT Advanced Technologies (NASDAQ:GTAT)

Ticker

Name

Equity Float / Float %

Equity Float (In mln shrs)

Sh Interest (In mln shrs)

GTAT

GT ADVANCED TECH

17.25

21.66

125.57

Solar and LED companies are taking a beating. Down 56.06% from its peak, GT is also being dragged down. GT, along with other solar plays, will likely face selling pressure as politicians demand an investigation in government-guaranteed loans made to Solyndra (SOLY). Fundamentally, the lack of demand from governments and the continuing drop in polysilicon spot prices makes GT Advanced Technology a stock to avoid. BNEF recently reported that The average selling price of polysilicon dropped 5.8% (week to October 10th) to $43.78 / kilogram.

Source: Bloomberg

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