Fears of recession induced crime wave and a Democratic congress partial to gun control boosted demand for gun makers Smith & Wesson Holdings (SWHC) and Sturm, Ruger (NYSE:RGR). Their revenue and share prices have benefited from this demand but the both stocks have fallen from their 52 week highs with SWHC down 17% since May 5th, 2009 and RGR down 4% since April 20th, 2009. Demand for new guns may be on the wane as The Wall Street Journal reported that the gun industry's indicator has settled back below November 2008 levels.
Short sellers may have been on to this trend before the story was out as the short base (as measured by Percent Shares Outstanding on Loan) for both stocks has increased . The short base (as measured by Percent Shares Outstanding on Loan) for RGR hit a new 52 week high of 16.83% on July 10th - up over 830% since mid April. SWHC has seen a sharp jump of 413% to 10.6% since June 19th when the short base was at a 52 week low.
In June SWHC posted solid earnings that beat analyst expectations. RGR reports earnings next week. The short market for both markets seem to be counting on a drop in demand but continued strong earnings could force a squeeze.