What Does Decrease of SHORT Shares Portend??

[Dr. Wu]

A fellow I know asked me to post the below on his behalf. He's not allowed to post on SHU.

 I do so because he has some interesting views to contemplate.

QUOTE

The large decrease in shares short over the last two reporting periods is telling us something; let's consider some:

12/13: 11, 613, 863
12/31: 9, 887, 592 ...... down 1, 726, 271 = 14.86% !
01/15: 8, 938, 351 ...... down again 949, 241 = 23.0% decr. in 1 Mo!!

In contrast, the SHORT interest decreased only about 11% after IOC announced exclusive negotiations with XOM.

Now, considering the pps action, this could be read a number of different ways. But it seems to me that, at least, there's been a whole lot'o covering goin' on (at a nice low pps, possibly manipulated.) I don't understand enough about dark pools to know what leviathans could be lurking there and am keeping my expectations low regarding relief from the shorts... for my emotional sanity's sake if nothing else. But this appears to be a very positive development.

I humbly propose the following inferences might be true.

1. Some hedgies believe the writing is on the wall. It's a good deal and it's highly likely to go through. Covering 23% of shares previously held short is probably not something to be ignored by investors. It seems like a gambler's "tell."

2. This pattern of covering might lead others to do the same. No one wants to get left holding an empty bag; their bosses wouldn't like that. Shorts win when others are shorting too; they need back-up.

3. One or 2 SHU-ins here have said they have reason to believe that there are HF traders waiting in the wings to invest when the deal happens. If that is the case, maybe HF shorts know that as well. Again, wanting to avoid empty bag syndrome— or should I rather say...significant loss syndrome. I hear it can be fatal, especially if there are pre-existing conditions present. Tough business.

4. Whereas this may, or may not, loosen up the squeeze a bit, I'm only wondering if it might also decrease the degree of manipulation possible – like by ~23% or so. That might be goofy thinking. I don't know if, all other things being equal and these converted shorts won't return to their wicked ways, that it could actually work that way. As to the squeeze, if there is HF $$$ waiting to come in, we still could get a hangman's noose squeeze.

5. Further, maybe shorts are hearing rumors that IOC Management/ BOD is looking into addressing their shenanigans and want to make their trading action look more reasonable. I mean really. Shorting the living daylights out of a stock that's undergoing a transformational deal – even if the rollout was poorly executed?

END QUOTE

Interesting thoughts - so why has the cost to borrow gone up?