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Shares of Radian Group, Inc. (NYSE:RDN) surged more than 22% on Thursday, following better-than-expected monthly operating statistics. Since my most recent commentary on Radian, MGIC's Pain Could Be Radian's Gain, published August 2, 2012, shares are up more than 50%.

Click to enlarge

RDN Chart
RDN
data by YCharts

RDN Chart
RDN
data by YCharts

New Insurance Written

During August, Radian wrote $3.75 billion in new insurance. It is likely that at least a part of this new insurance is business that would have otherwise gone to MGIC Investment Corporation (NYSE:MTG) if the company was not engaged in a dispute with Freddie Mac.

Delinquency Declines

Perhaps the most notable news from Radian yesterday was news that the delinquent inventory of loans declined from 97,012 to 94,823. This is very positive development for Radian as it signals a major turn for the company where cures are beginning to outpace new delinquencies. Clearly, Radian is starting to feel to effects of an improving housing market.

Investment Gains

Radian also said it realized a $120 million after-tax gain on securities in its investment portfolio. Considering RDN's market capitalization is just over $500 million, the impact of this should not be underestimated.

Volume

Following the good news previously discussed, RDN shares surged on strong volume. Radian traded more than $11 million shares on Thursday. Comparably, the ten-day average trading volume for RDN is 3.2 million shares. The heavy volume could indicate that a short-term top is approaching.

Resistance Above

After Thursday's gains, as shown by the chart below, Radian is getting closer to its 52-week high of $4.68. I expect this level to serve as short-term resistance.

RDN Chart
RDN
data by YCharts

Short Interest

Prior to Thursday's trading session, short interest stood at more than 31 million shares or 23% of the float. It is likely that some of the buying on Thursday was short covering. However, the short interest remains very high, and with the stock gaining momentum, a short squeeze could carry shares higher.

Trading Outlook

Given the combination of good news, high volume, and resistance overhead, it might make sense for short-term traders to take some profits. However, I would certainly leave a part of any long position on the table. A short squeeze looks highly possible and that would send shares sharply higher. For investors who do not yet own Radian, I would look to buy any pullback to the $3.50 area.

Source: Updating My Outlook For Radian