Whiting Trust 1 Price Supported By Short Covering, Will End Soon

| About: Whiting USA (WHX)
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Recent and Near Term Forward WHX Price Analysis

This article provides a timing update to my last article on the valuation of Whiting USA Trust 1 (NYSE:WHX), as well as supporting information for a more recent article by Kellie Peterson discussing the price pattern WHX is following.

As expected WHX fell more than the distribution on August 15. It closed that day at $4.23, $0.77 lower than the prior close of $5.00, or a drop 44% more than the $0.5335 distribution.

Since then WHX has actually risen a bit, as predicted by Kellie's above article. Why would WHX rise post-distribution, when the next distribution is 3 months away and it remains overvalued by about 40%?

Shorts Are Covering (Buying) To Close

As a few commenters to the above articles have mentioned, WHX was difficult or impossible to short for about two weeks prior to August 15, because there were no trust units to borrow. Shorts had taken the largest position they could possibly take in WHX (without using very expensive puts). This remained true until today.

As of this morning August 20, one report, by Interactive Brokers, of short-able securities shows 250,000 units of WHX available to borrow, whereas there were none last night, none for the past 2 weeks, and less than 50,000 for weeks prior to that.

To confirm the current amount available to borrow you can Google 'interactive brokers short-able stock list', Google 'Search Shortable Products', or try this link which works intermittently (search for WHX a few times if it doesn't come up at first):


Note that this is only one broker's report of what they can find to borrow, and this number can change quickly.

At some point the broker has 'enough' to meet demand and stops looking for more. There are at least 250,000 units available to borrow as of August 20. This is a relatively high number for WHX. 250,000 is an order of magnitude more than have been available to borrow for many weeks.

250,000 is also more than the current WHX daily volume of 200,000 units (August 20).

Short Covering Has Propped Up WHX The Past Few Days

A conservative assumption based on this data is that short sellers have covered (or bought) more than a day's worth of volume in the past few days, whereas new short sellers are not entering WHX, thereby freeing up the units to borrow. If it weren't for the short sellers covering (buying) their positions to the tune of a day's volume, the net of opening buyers and sellers the past few days would have resulted in lower prices.

I propose that this 'short covering' is a primary driver behind the recent slight increase in the price of WHX, even though the distribution is complete and it remains highly overvalued.

Prediction: WHX Will Drop 25%+ Near Term (1-2 Months)

As the short sellers finish closing their positions, this buying power will diminish, and the price will drop further in the near term. This supports Kellie's price pattern in the above article.

As it drops, those who are still long WHX may take a closer look at its true value and sell, sending it lower. This is what appears to have happened after the May distribution when WHX fell from $6.50 mid May to $3.30 in late June before ramping up going into the latest distribution. With the latest $0.5335 distribution taken out of its value, $3.30 in June is similar to $2.78 now.

Will history repeat itself? Time will tell.

Disclosure: I am short WHX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.