Clearwire Sees A High Amount Of Short Covering

Dec. 8.11 | About: Sprint Corporation (S)

Clearwire (CLWR) successfully priced its equity offering last night (12/7/11), selling 175MM shares to the public at $2. In the first half hour of trading this morning (12/8/11), volume exceeded the highest volume day since August when the new business plan was announced.

This is due to massive short covering, as the shorts no longer have any reason to hang around - the offering is priced and the potential for negative surprises through 2012 is low. CLWR was one of the most heavily-shorted stocks on Nasdaq - so why didn't the price skyrocket when trading opened? The investors that were lucky (and smart) enough to be included in the offering were more than happy to oblige the shorts and take a 5%-plus profit overnight. The first hour of trading volume was equal to about one-third of the public offering, and exceeded the entire short position reported as of 11/15/11.

The offering should put a near-term floor on the stock of $2, and now that we're finally the getting shorts off our backs (I am long the stock), the stock should soon be free to start trading based on the fundamentals for the first time this year. Even post-dilution I believe the stock is incredibly cheap and think the buying opportunity is still ripe.

Remember that the stock mostly traded between $1.50 and $2 even after Sprint said they'd be OK with a CLWR bankruptcy and CLWR's CEO said they might skip the December 1st interest payment. With the Sprint agreement in place and the equity raised, those types of shocks are ancient history and I see nothing but upside going forward.

For a summary of my CLWR investment thesis see my recent articles posted here.

Disclosure: I am long CLWR.