Joe Friday

Blue Nile: Trading on Thin Air

if you watch the trading in this stock you will note very large swings on very little volume, especially on the open. There is very litte in the "public" float. Shorts that have to cover for margin or borrow reasons have no option but to pay up to buy the shares, and the market makers have enough control on the float to ensure they pay a healthy premium to cover. This is a classic short squeeze stock.
About 3M shares have been covered in the last six months, and this is the source of most of the run. It is not possible to justify the purchase of Nile on any other basis.
Those shorts that have covered are likely waiting to pounce on any weakness, and when they do the market makers will not pick up the paper on the way down. In addition, it is not possible to exit from this stock with any position of size without dramatically reducing the price. Thin floats are a two edged sword.