Novastar Financial Up 22%: Why Doesn't Anyone Care?

The stock that no one seems to be discussing is Novastar Financial (NFI). Novastar Financial is a company in the subprime lending industry. Amongst the volatility and mayhem of the market, it has not affected the trade price of NFI. Today, it is the number two price gainer of the New York Stock Exchange, yet CNBC has not mentioned one word.

Why?

As we all know, the subprime crisis has created a lot of pessimism in the market. So much that institutional investors are using this information to make money and shorted stocks like NFI. A friend of mine essentially said there are more shares being shorted than actually available for NFI.

With the stock price going up about 4% Tuesday, and 22% Wednesday, many institutions are losing money and are forced to cover. What happens when a person or institution is forced to cover? They, normally, do not receive a price they were hoping and have to buy stocks immediately.

With that said, NFI has the potential, and will most likely increase in price within the next couple of days. There is a threshold security list, which means “sellers failed to deliver 10,000 shares or more in the past five trading days and the level of “fails” is a minimum of 0.5 percent of the shares outstanding.” NFI has done so for 14 consecutive days.

I want you to think about why it has not been discussed on CNBC … why have we not heard anything interesting about the subprime market?

NFI 1-yr chart

Disclosure: none

Comments

[Shawn Larkin:]

Check out shortsqueeze.com and check out the "Short % of Float" and you will see that, (according to shortsqueeze.com) NFI's short interest as a percentage of the float is over 90%! (as of my check this morning). More covering to follow?

2007 Aug 23 09:28 AM