Rising Short Ratio Sometimes Means An Exploding Short Squeeze

Includes: AABA, BAC, DANG, GOOG, S
by: Edgar Ambartsoumian

Every investor has gone against the grain one time or another. After all, it is a rewarding feeling when one ends up being correct at the end. It is even more satisfying to see companies' short ratios increase month after month, and then seeing all the shorts cover in panic when optimism sets in.

I continue to be long Bank of America (NYSE:BAC) and average down everytime the stock retraces towards $5.00 by writing December $6.00 strike calls simultaneously. Bank of America saw its short ratio increase from 189,889,800 in November to currently 238,719,000. And the result was a short squeeze explosion on Dec. 5, when the stock surged from $5.68 to $5.94 in a few hours. Of course it lost steam days after, due to the torturing European problems that are close to fading away our Christmas rally.

Another oversold company that ripped bears apart on December 6, was Clearwire (CLWR) Company's short ratio, which rose from 46,678,400 in November to currently 49,603,400. Immense short squeeze pushed the stock from lows of $2.11 to 2.61. Clearwire recently announced its stock offering of $350 million to expand its TD/LTE network along with its mobile WiMax network. In addition, Sprint (NYSE:S), majority shareholder, has agreed to cushion up the deal in buying $295 million of Clearwire's Class B common stock in a private placement. I guess there is a slight hope for both companies that have misleading advertisements, and have been losing disappointed subscribers at a very fast rate.

Yahoo (YHOO) also saw its short ratio increase from 32,153,400 in November to 36,530,200 in December, which was a whopping increase of 13%. Between Nov. 25, and Dec. 1, the stock price resulted in a run away gap ranging from $14.94 to $16.39. Plagued with decreased ad revenue, Yahoo's desperate move was to acquire InterClick for $270 million to compete with giants like Google (NASDAQ:GOOG) and Facebook.

And last stock noteworthy of exposure is a small cap ADR by the name of E Commerce China Dangdang Inc (NYSE:DANG). The stock symbol describes what shorters exclaimed yesterday as the stock surged nearly 20% with three times the average volume. This name was also heavily shorted last month with 9,000,600 shares versus 9,253,200 shares short in this month. The stock's optimism came from the company's recent announcement that DANG will be launching its own e-book platform that can be read on its own apps for Android and iOS. Despite its 3rd-quarter losses, the stock remains to be a hedge fund favorite going into 2012.

Disclosure: I am long BAC.